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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _____________________.
Commission file number: 000-23713
GULF WEST BANKS, INC.
(Exact Name of Registrant as Specified in Its Charter)
FLORIDA 59-3276590
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
425 22ND AVENUE NORTH
ST. PETERSBURG, FLORIDA 33704
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (813) 894-5696
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- -----------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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The aggregate market value of the voting stock held by non-affiliates
of the registrant as of February 28, 1998, was $21,469,910. The number of shares
of the registrant's common stock outstanding as of February 28, 1998, was
5,458,786.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's Annual Report to Shareholders for the fiscal year ended
December 31, 1997, is incorporated by reference into Part II of this Annual
Report on Form 10-K. The registrant's definitive Proxy Statement relating to the
registrant's 1998 annual meeting of shareholders, as filed with the Commission
on March 16, 1998, is incorporated by reference into Part III of this Annual
Report on Form 10-K.
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PART I
ITEM 1. BUSINESS.
INTRODUCTION
Gulf West Banks, Inc. ("Gulf West" or the "Company") is a one-bank
holding company registered under the Bank Holding Company Act of 1956, as
amended, and was incorporated under the laws of the State of Florida effective
October 24, 1994. Gulf West's principal assets are all of the issued and
outstanding shares of capital stock of Mercantile Bank, a Florida state banking
corporation which is located in St. Petersburg, Florida ("Mercantile"), and all
of the issued and outstanding shares of Liberty Leasing Corporation ("Liberty"),
a Florida corporation located in Tampa, Florida, which is engaged in equipment
leasing.
The principal executive offices of Gulf West and Mercantile are located
at 425 22nd Avenue North, St. Petersburg, Florida 33704, and their telephone
number is (813) 894-5696. Liberty is located at 5440 Mariner Street, Suite 204,
Tampa, Florida 33609 and its telephone number is (813) 287-2982.
ACTIVITIES OF GULF WEST
Currently, the only business activity of Gulf West is to own and
operate Mercantile and Liberty. Mercantile provides a wide range of personal and
commercial banking services to customers located in the Florida counties of
Pinellas, Hillsborough, and Pasco. The activities of Mercantile are described in
more detail below under the caption "Activities of Mercantile." Liberty is an
equipment leasing company that arranges financing for a variety of equipment for
all types of businesses. Liberty currently comprises a de minimis portion of
Gulf West's total assets and earnings. Although other activities are permitted
under the Bank Holding Company Act of 1956, management of Gulf West has no
current plans to engage in any other activities, although it may choose to do so
at a later date.
ACQUISITION OF CITIZENS NATIONAL BANK AND TRUST COMPANY
On January 16, 1998, the Company acquired Citizens National Bank and
Trust Company of Port Richey, Florida ("Citizens National") in exchange for
approximately 1,950,000 shares of the common stock of the Company. The
acquisition was effected through the merger of Citizens National with and into
Mercantile pursuant to an Amended and Restated Agreement and Plan of Merger,
dated October 16, 1997, by and among Gulf West, Mercantile, and Citizens
National. Citizens National was a national banking association which was
originally chartered by the Office of the Controller of the Currency on February
29, 1988. Prior to the acquisition, Citizens National engaged in general
commercial banking and trust services from its one full service banking location
in Port Richey, Florida. As a part of the acquisition, Mercantile amended its
charter to include trust powers so that it could continue the trust business of
Citizens National. As a result of the acquisition, Citizens National's single
banking office is currently being operated as the Port Richey office of
Mercantile.
ACTIVITIES OF MERCANTILE
The principal services offered by Mercantile include commercial and
individual checking and savings accounts, money market accounts, certificates of
deposit, most types of loans, and letters of credit. Mercantile also provides
credit card services through a national credit card issuer and acts as issuing
agent for U.S. Savings Bonds, travelers checks, and cashiers checks. Mercantile
offers collection teller services, wire transfer facilities, safe deposit
facilities, and night depository facilities. Merctantile's transaction accounts
and time certificates are tailored to Mercantile's principal market area at
rates competitive with those offered in Mercantile's primary service area. In
addition, Mercantile offers certain retirement account services, including
individual retirement accounts. As described above, Mercantile also offers trust
services in its newly acquired Pasco County, Florida office. All of Mercantile's
deposit accounts are insured by the FDIC up to the maximum amount allowed by
law.
Mercantile offers a wide range of short to medium-term commercial and
personal loans. Commercial loans include both secured and unsecured loans for
working capital (including inventory and receivables), business expansion
(including acquisition of real estate and improvements), purchase of equipment
and machinery, and Small Business Administration ("SBA") loans. Consumer loans
include secured and unsecured loans for financing automobiles, home
improvements, and personal investments. Mercantile also originates and holds
construction and acquisition loans on residential real estate. At December 31,
1997, commercial and consumer loans accounted for approximately 74.14% and
10.60%, respectively, of Mercantile's loan portfolio.
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Loans on residential real estate accounted for the remaining 15.26% of the loan
portfolio. All loans are made in compliance with applicable federal and state
regulations.
Mercantile's lobby business hours are generally from 9:00 a.m. to 4:00
p.m., Monday through Thursday, 9:00 a.m. to 6:00 p.m. on Fridays, and 9:00 a.m.
to 12:00 p.m. on Saturdays. The drive-up teller hours are generally 8:00 a.m. to
5:00 p.m. on Monday through Thursday, 8:00 a.m. to 6:00 p.m. on Fridays, and
8:00 a.m. to 12:00 p.m. on Saturdays. However, drive-in hours do vary slightly
from office to office depending on customer requirements. Mercantile also has
24-hour automatic teller machines (ATM's) at each of its offices. Mercantile
issues debit cards to its customers that can be used in any bank ATM as well as
any ATM's which are members of the HONOR and CIRRUS networks.
Mercantile's data processing is handled by an outside service bureau --
FiServ, Inc. of Atlanta, Georgia. Item processing is handled by Barnett
Technologies, Inc., Tampa, Florida. The amount paid for these services is
dependent on the volume of transactions and the number of accounts being
processed. In the year ended December 31, 1997, Mercantile paid $409,000 for
data processing services. Mercantile makes extensive use of personal computers
in all areas of its operations that permit efficient handling of deposit and
loan accounts and other paper intensive applications such as word processing.
MARKET AREA
Seven of Mercantile's banking offices are located in Pinellas County,
Florida, two are located in Hillsborough County, Florida, and one is located in
Pasco County, Florida. All three counties are in the west central Gulf Coast of
Florida. The residential population of Pinellas County as of the 1990 census was
852,000 and the estimated population in 1997 was 887,000. Hillsborough County
had a residential population of 834,000 as of the 1990 census and the estimated
1997 population was 911,000. Pasco County had a residential population of
281,000 as of the 1990 census and the estimated 1997 population was 315,000. The
area has many more seasonal residents. The majority of Mercantile's business is
generated from customers whose businesses or residences are located in an area
within a radius of three miles of one of its banking offices. Four of the
Pinellas County offices are located within the city limits of St. Petersburg,
one is located in the unincorporated community of Tierra Verde, one is located
in the city limits of Dunedin, and another one in the city limits of Pinellas
Park. The Hillsborough County offices are located within the city limits of
Tampa and Temple Terrace, and the Pasco County office is located in the city
limits of Port Richey.
OPERATING STRATEGY
The management of the Company believes that the emerging dominance of
large regional holding companies in the banking industry has created a need for
more locally-owned institutions with personalized banking services. Mercantile
was organized as a locally-owned, locally-managed community financial
institution, owned and managed by people who are actively involved in
Mercantile's market area and committed to its economic growth and development.
With local ownership, management, and directors, the Company's management
believes that Mercantile can be more responsive to the communities it serves and
tailor services to its customers' needs rather than provide the standardized
services that large holding companies tend to offer. Local ownership and
operation will allow faster, more responsive, and flexible decision-making which
is not available at the majority of financial institutions in or near
Mercantile's market area which are branch offices of large regional holding
company banks with headquarters located elsewhere in Florida or in the United
States.
The principal business of Mercantile is to attract deposits from the
general public and to invest those funds in various types of loans and other
interest-earning assets. Funds are provided for the operations of Mercantile
through proceeds from the sale of investments and loans, from amortization and
repayment of outstanding loans, investments, net deposit inflow, and from
borrowings. Earnings of Mercantile depend primarily upon the difference between
(1) the interest and fees received by Mercantile from loans, the securities held
in its investment portfolio, and other investments and (2) expenses incurred by
Mercantile in connection with obtaining funds for lending (including interest
paid on deposits and other borrowings) and expenses relating to day-to-day
operations.
To the extent market conditions permit, Mercantile follows a strategy
intended to insulate Mercantile's interest rate gap from adverse changes in
interest rates by maintaining spreads through the adjustability of its
interest-earning assets and interest-bearing liabilities. Mercantile's ability
to reduce interest-rate risk in its loan and investment portfolios will depend
upon a number of factors, many of which are beyond Mercantile's control,
including among others, competition for loans and deposits in its market area
and conditions prevailing in the secondary market.
The primary sources of Mercantile's funds for lending and for other
general business purposes are Mercantile's capital, deposits, loan repayments,
and borrowings. Mercantile expects that loan repayments will be relatively
stable sources of funds,
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while deposit inflows and outflows will be significantly influenced by
prevailing interest rates, money market rates, and general economic conditions.
Generally, short-term borrowings may be used to compensate for reductions in
normal sources of funds while longer-term borrowings may be used to support
expanded lending activities.
Mercantile's customers are primarily individuals, professionals, small
and medium size businesses, and seasonal retirees located predominantly in
Pinellas, Hillsborough, and Pasco Counties, Florida. Mercantile's locations are
situated in areas that are convenient to these types of customers.
Mercantile continually seeks to develop new business though an ongoing
program of personal calls on both present and potential customers. As a local
independent bank, Mercantile utilizes traditional local advertising media as
well as direct mailings, telephone contacts, and brochures to promote the bank
and develop loans and deposits. In addition, Mercantile's directors all have
worked and/or lived in or near Mercantile's market area for a number of years.
Management believes that this factor, coupled with the past and continued
involvement of the directors and officers in various local community activities,
will further promote Mercantile's image as a locally-oriented independent
institution, which management believes is an important factor to its targeted
customer base.
COMPETITION
The banking industry in general, and Mercantile's market in particular,
is characterized by significant competition for both deposits and lending
opportunities. In its market area, Mercantile competes with other commercial
banks, savings and loan associations, credit unions, finance companies, mutual
funds, insurance companies, brokerage and investment banking firms, and various
other nonbank competitors. Competition for deposits may have the effect of
increasing the rates of interest Mercantile will pay on deposits, which would
increase Mercantile's cost of money and possibly reduce its net earnings.
Competition for loans may have the effect of lowering the rate of interest
Mercantile will receive on its loans, which would lower Mercantile's return on
invested assets and possibly reduce its net earnings. Many of Mercantile's
competitors have been in existence for a significantly longer period of time
than Mercantile, are larger and have greater financial and other resources and
lending limits than Mercantile, and may offer certain services that Mercantile
does not provide at this time. However, management feels that the market is rich
with opportunity to provide tailor-made custom banking products and services
which cannot be provided by the large institutions which offer many banking
products and services on an impersonal basis. With the recent acquisitions by
larger institutions, the opportunity has been enhanced as customers are looking
for more personalized service. This concept known as "niche" or "boutique"
banking will enable Mercantile to capture its share of the professional market,
entrepreneurs, and small to medium size commercial businesses while continuing
to provide exceptional banking services to all customers. The profitability of
Mercantile depends upon its ability to compete in this market area. At the
present time, Mercantile is unable to predict the extent to which competition
may adversely affect its financial condition and operating results.
There are approximately 30 commercial banks and savings and loan
associations in Pinellas County. In Hillsborough County there are approximately
31 such institutions, and in Pasco County, there are approximately 20 such
institutions. Mercantile expects to receive competition from all of these
financial institutions, a significant number of which have offices located in
the St. Petersburg and Tampa areas. In order to compete with major financial
institutions and others in Mercantile's market area, Mercantile emphasizes
specialized and personal service by its directors, officers, and employees.
Mercantile believes that its local ownership and community oriented operating
philosophy and personalized banking service are competitive factors which
strengthen Mercantile.
EMPLOYEES
As of December 31, 1997, Gulf West employed 113 employees of which 104
were full-time and nine were part-time, including six executive officers. Gulf
West's employees are not represented by a collective bargaining group, and Gulf
West considers its relations with its employees to be excellent. Gulf West
provides employees with benefits customary in the banking industry, which
include major medical insurance, group term life insurance, dental insurance,
long term disability insurance, a 401(k) savings plan, and vacation and sick
leave.
YEAR 2000 COMPLIANCE
The Company has an ongoing program designed to ensure that its
operational and financial systems will not be adversely affected by year 2000
software failures caused by processing errors arising from calculations
involving the year 2000 or subsequent years. Based on current estimates, the
Company expects to incur approximately $50,000 over the next three years on its
program to redevelop, replace, or repair its computer applications to make them
"year 2000 compliant." While the Company
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believes that it is doing everything technologically possible to assure year
2000 compliance, it is to some extent dependent on vendor cooperation. The
Company is requiring its computer system and software vendors to represent that
the products provided are, or will be, year 2000 compliant, and the Company has
planned a program of testing for compliance. The Company recognizes that any
year 2000 compliance failures could result in additional expense to the Company.
ACQUISITION OF FORMER NATIONSBANK FACILITY
In December 1997, Mercantile purchased a former NationsBank branch
office facility located at 4801 W. Hillsborough Avenue in Tampa, Florida. This
facility is a 1,900 square foot, free-standing, one-story building with five
drive-in teller lanes and four inside teller stations. Mercantile has received
regulatory approval to open an office at this location, and the opening of this
office is currently scheduled for early in the second quarter of 1998.
ITEM 2. PROPERTIES.
Gulf West corporate offices are located within the main office of
Mercantile. Liberty Leasing occupies approximately 1,800 square feet of leased
space in the Tampa Koger Center located at 5440 Mariner Street. The lease is for
a three-year term expiring July 31, 1999, automatically renewable for successive
three-year terms unless a ninety-day notice is provided by either party to the
lease. The rental payments are subject to annual CPI escalators with a minimum
of 5%. The current base monthly rent is $2,105 plus taxes.
In addition to its main office in St. Petersburg, Mercantile also has
four additional locations throughout St. Petersburg, at the Koger Executive
Center, in the "Maximo" area of South St. Petersburg, in the downtown business
district and an operations center on Scherer Drive. Mercantile also has branches
in Tierra Verde, in the Westshore area in Tampa, in the Countryside area in
Clearwater, in Temple Terrace, and in Largo. As discussed above in "Acquisition
of Citizens National Bank and Trust Company," Mercantile has also recently
acquired an office in the Pasco County city of Port Richey.
Mercantile's main office is located at 425 22nd Avenue North, St.
Petersburg, Florida 33704. This office also serves as Mercantile's main office
banking facility. It has approximately 9,000 square feet and houses a branch
office on the first floor, the commercial lending department and Mercantile's
and Gulf West's executives offices. The building was constructed in 1987 and is
a two-story structure located on a 71,000 square foot parcel of land which
Mercantile owns. Two other buildings are also located on this site, both one
story structures containing 3,100 and 6,500 square feet of space which
Mercantile currently leases to small retailers and professional offices. The
property is located less than two miles north of the downtown business district
of St. Petersburg. Mercantile's branch office at this location was opened in
1987. It contains approximately 2,700 square feet and has two drive-in lanes, an
ATM, a night depository, safety deposit boxes and four lobby teller stations. At
December 31, 1997 this office had $39,029,274 in deposits.
The Tierra Verde office is located at 1110 Pinellas Bayway, Tierra
Verde, Florida 33715. Tierra Verde is an unincorporated island community
southwest of downtown St. Petersburg, Florida. The residents of Tierra Verde are
generally affluent, with one of the highest per capita income levels on
Florida's west coast. Mercantile opened for business at this office in May 1986,
and this was Mercantile's main office until November 1988, when the main office
was relocated to its current location. Mercantile's branch office in Tierra
Verde is located on the first floor of a two story commercial condominium
complex which fronts on the island's main thoroughfare. The branch contains
2,000 square feet with three lobby teller stations, an ATM, night depository,
safety deposit boxes and one drive-in teller lane. Mercantile also owns 2,000
square feet of office space directly above the branch which houses a conference
room, meeting room and office space. At December 31, 1997, this office had
$31,251,883 in deposits.
The Koger office is located at 9400 4th Street North, St. Petersburg,
Florida 33702. Mercantile rents approximately 2,500 square feet on the first
floor of a building that is part of a multi-building professional office complex
known as the Koger Executive Center. The complex is located approximately five
miles north of Mercantile's main office and the building in which the branch is
located fronts on 4th Street North, which is a major north-south traffic artery
in St. Petersburg. The office was opened in 1991 and at December 31, 1997, had
$22,237,268 in deposits. The office has four lobby teller stations, an ATM, a
night depository, safe deposit boxes and three drive-in teller lanes.
The Westshore branch office is located at 4202 West Kennedy Boulevard,
Tampa, Florida 33609, on the corner of Lois Avenue and Kennedy Boulevard. The
office is in a 4,000 square foot, free-standing, one story building which is
leased by Mercantile. The office is within one mile of the center of the
Westshore business district, which is a major business center of Tampa. The
office was opened in late 1993 and at December 31, 1997, had $14,700,443 in
deposits. The office has four lobby
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teller stations, four drive-in teller lanes, an ATM, a night depository and safe
deposit boxes.
Mercantile's Countryside office at 28100 U.S. Highway 19 North,
Clearwater, Florida 33761 is located within the city limits of Dunedin but has a
Clearwater mailing address. Mercantile leases approximately 3,325 square feet on
the first floor of a five story, 80,000 square foot professional office
building. Chase Manhattan Bank of Florida occupied this facility until late
1994, when the office was closed due to a consolidation program by that
institution. The facility has four lobby teller stations, three drive-in teller
lanes, an ATM, a night depository, and safe deposit boxes. This office opened in
March, 1995, and at December 31, 1997, had $16,157,420 in deposits.
The Temple Terrace office is located at 9400 North 56th Street, Temple
Terrace, Florida 33617. This facility is a 4,000 square foot, free-standing,
one-story building located on two acres of land that was purchased by Mercantile
in November, 1995. The office has six lobby teller stations, three drive-in
teller lanes, an ATM, a night depository and safe deposit boxes and was opened
in January, 1996. Total deposits of this office at December 31, 1997, were
$16,591,473.
Mercantile's Bryan Dairy office is located at 8040 Bryan Dairy Road,
Largo, Florida 33777, within the corporate city limits of Pinellas Park.
Mercantile rents 5,000 square feet in a commercial complex that was constructed
in mid-1996. The office opened in September 1996, and has four lobby teller
stations, three drive-in teller lanes, an ATM, a night depository and safe
deposit boxes. At December, 31, 1997, total deposits of this office were
$5,217,065.
The Maximo office is located at 3655 50th Avenue South, St. Petersburg,
Florida 33711. Mercantile built this 3,000 square-foot facility in late 1996 and
opened the office in December, 1996. The building is situated on one acre of
land and contains four lobby teller stations, three drive-in teller lanes, an
ATM, a night depository and safe deposit boxes. On December 31, 1997, deposits
were $4,872,783.
Mercantile's Downtown St. Petersburg office is located at 240 1st
Avenue South, St. Petersburg, Florida 33701 in the heart of the downtown
business district. The Bank rents approximately 3,436 square feet on the first
floor of a four story office building. The facility has four lobby teller
stations, a walk-up teller station, two drive-in teller lanes, an ATM, a night
depository and safe deposit boxes. The office was opened in February 1997. At
December 31, 1997, total deposits of this office were $5,058,919.
Mercantile's Port Richey office is located at 9550-1 U.S. Highway 19,
Port Richey, Florida 34668. As noted above under the caption "Acquisition of
Citizens National Bank and Trust Company," Mercantile acquired the Pasco County
office as a result of the merger of Citizens National with and into Mercantile
on January 16, 1998. This office occupies 10,210 square feet of leased space on
two floors. The facility has four lobby teller stations and two outside drive-in
teller lanes, as well as safe deposit booths.
As of January 31, 1998, total deposits at this office were $65,089,038.
In December 1997, Mercantile purchased a former NationsBank branch
office facility located at 4801 W. Hillsborough Avenue in Tampa, Florida 33614.
This facility is a 1,900 square foot, free-standing, one-story building with
five drive-in teller lanes and four inside teller stations. Mercantile has
received regulatory approval to open an office at this location, and the opening
of this office is currently scheduled for early in the second quarter of 1998.
Mercantile also rents approximately 6,636 square feet in a professional
office complex located at 2860 Scherer Drive, St. Petersburg, Florida 33716.
This facility houses Mercantile's consumer and residential lending departments,
the data processing operations department, the deposit and loan operations
department and the accounting department.
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The following table presents information regarding the terms of the
leases to which Mercantile is currently a party:
<TABLE>
<CAPTION>
CURRENT
SQUARE START/ MONTHLY
LOCATION FEET END OPTIONS BASE RENT OTHER TERMS
- -------- ---- --- ------- --------- -----------
<S> <C> <C> <C> <C> <C>
Koger Office 2,500 4/1/96 - Automatic 3,136 Annual CPI increases
9400 4th Street N. 3/31/01 5 Year Plus use tax
St. Petersburg Renewals CAM
Countryside Office 3,325 3/1/95 - Two option 5,993 Annual CPI not less than 4%
28100 US 19 North 2/28/05 Periods of Plus use tax
Clearwater 5 years each CAM
Westshore Office 4,000 9/1/93 - Two option 4,679 Annual CPI not less than 4%
4202 W. Kennedy Blvd. 8/31/98 Periods of Plus use tax
Tampa 5 years each CAM
Bryan Dairy Office 5,000 7/1/96 - Four option 6,250 Fixed for 1st 5 years -
8040 Bryan Dairy Road 6/30/11 periods of Plus use tax 3% annual increases thereafter
Largo 5 years each CAM
Downtown St.
Petersburg Office 3,436 1/1/97 - Sublease 4,583
240 1st Avenue South 7/31/98 Plus use tax
St. Petersburg
8/1/98 - One option Year 1 - 4,054
7/31/03 period for Year 2 - 4,369
5 years Year 3 - 4,518
Year 4 - 4,673
Year 5 - 4,833
Plus use tax
CAM
Operations Center 6,636 6/1/96 - One option Year 1 - 4,015
2860 Scherer Drive 5/31/01 period of Year 2 - 4,153
Suite 630 5 years Year 3 - 4,291
St. Petersburg Year 4 - 4,429
Year 5 - 4,567
Plus use tax
CAM
Port Richey Office
9550-1 U.S. Highway 19
Port Richey
First Floor 5,300 5/4/88- One option $7,265
6/4/98 period of Plus use tax
10 years CAM
Second Floor 5,210 8/25/98 Two option $2,171
9/25/99 periods of 5 Plus use tax
years each CAM
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS.
Gulf West and Mercantile are parties to various legal proceedings in
the ordinary course of business. Management does not believe that there is any
pending or threatened proceeding against Gulf West or Mercantile which, if
determined adversely, would have a material adverse effect on the business,
results of operations, or financial position of Gulf West or Mercantile.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Although there is no established public trading market for the
Company's common stock, the brokerage firm of Raymond James & Associates, Inc.
facilitates trades of the Company's common stock in the over-the-counter market.
Prices reported to the Company ranged from $4 5/8 to $5 1/8 per share during
1996 and $5 1/8 to $5 1/2 during 1997. The Company paid cash dividends of $0.03
per share in 1995, paid a 5% stock dividend in 1996 and declared a 10% stock
dividend in January, 1998.
Further dividends, if any, will be determined by the Board of Directors.
As of January 17, 1998, the Company had approximately 625 holders of
record of common stock.
The following sales of shares of Gulf West common stock, par value
$1.00 per share ("Gulf West Common Stock"), were not registered pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), but were issued
pursuant to the exemptions indicated below:
On January 27, 1997, 7,691 shares of Gulf West Common Stock were issued
to officers and employees of Gulf West pursuant to Gulf West's employee stock
purchase plan at a per share purchase price of $5.12. Such shares were issued
pursuant to the intrastate offering exemption contained in Section 3(11) of the
Securities. Such exemption was available because all shares were offered and
sold only to employees of Gulf West or its subsidiaries, all of whom are
residents of Florida, and Gulf West is incorporated and does business solely in
the State of Florida.
On May 6, 1997, each member of the Board of Directors of Gulf West was
issued 420 shares of Gulf West Common Stock as compensation for his service on
the Board of Directors. This transaction was made in reliance on the exemption
set forth in Rule 504 under the Securities Act.
On September 23, 1997, the President of Gulf West, pursuant to the
exercise of options, purchased an aggregate of 5,595 shares of Gulf West Common
Stock. 2,625 of such shares were purchased at a per share exercise price of
$3.81, and 2,970 of such shares were purchased at a per share exercise price of
$2.92. This transaction was made in reliance on the exemption set forth in Rule
504 under the Securities Act.
(b) Not applicable.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is incorporated herein by
reference to the information set forth under the caption "SELECTED FINANCIAL
DATA" in the 1997 Annual Report to Shareholders of Gulf West (the "1997 Annual
Report")..
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this Item is incorporated herein by
reference to the information set forth under the caption "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in the
1997 Annual Report.
9
<PAGE> 10
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item is incorporated herein by
reference to the information set forth under the following captions contained in
the 1997 Annual Report:
(i) "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Market Risk;"
(ii) "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Asset-Liability Structure;" and
(iii) Note 10 to "CONSOLIDATED FINANCIAL STATEMENTS OF GULF WEST BANKS,
INC. AND SUBSIDIARIES."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is incorporated herein by
reference to the information set forth under the caption "FINANCIAL REVIEW" in
the 1997 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item regarding the Company's directors
and executive officers is incorporated herein by reference to the information
set forth under the caption "MANAGEMENT" in the Company's definitive Proxy
Statement for the 1998 Annual Meeting of Shareholders, as filed with the
Commission on March 16, 1998 (the "1998 Proxy Statement"). The information
required by this Item regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is incorporated herein by reference to the information set
forth under the caption "EXECUTIVE COMPENSATION -- Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's 1998 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by
reference to the information set forth under the caption "EXECUTIVE
COMPENSATION" in the Company's 1998 Proxy Statement.
10
<PAGE> 11
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated herein by
reference to the information set forth under the caption "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mercantile has extended loans to various officers and directors of
Mercantile and Gulf West. All of these loans were made in the ordinary course of
business, were made on substantially the same terms (including interest rates
and collateral) as those prevailing at the time for comparable transactions with
other persons, and did not involve more than the normal risk of collectibility
or present other unfavorable features.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Annual Report on Form 10-K:
(1) Financial Statements
<TABLE>
<S> <C>
Independent Auditor's Report.............................................page 47 of 1997 Annual Report
Consolidated Balance Sheet...............................................page 27 of 1997 Annual Report
Consolidated Statement of Earnings.......................................page 28 of 1997 Annual Report
Consolidated Statements of Stockholders' Equity..........................page 29 of 1997 Annual Report
Consolidated Statements of Cash Flows....................................page 30 of 1997 Annual Report
</TABLE>
(2) All schedules have been included as an exhibit to this
Annual Report on Form 10-K or the information is included elsewhere in the
financial statements or notes thereto.
3) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Description of Document
- -------------- -----------------------
<S> <C>
2* Amended and Restated Agreement and Plan of Merger by and among Citizens
National Bank and Trust Company, Inc., Gulf West Banks, Inc. and Mercantile Bank
3.1* Articles of Incorporation of Gulf West Banks, Inc.
3.2* Bylaws of Gulf West Banks, Inc.
10.1* Form of Registration Rights Agreement with Gordon W. Campbell and John Wm.
Galbraith
10.2* Salary Continuation Agreements with Gordon W. Campbell, Barry K. Miller, and
Robert A. Blakley (1)
10.3* Employment Contract with Gordon W. Campbell (1)
10.4* Stock Option Plan (1)
11** Statement regarding computation of per share earnings
13 1997 Annual Report to Shareholders
21* Subsidiaries of Registrant
23.1 Consent of Hacker, Johnson, Cohen & Grieb PA
27 Financial Data Schedule (for SEC use only)
</TABLE>
(1) denotes a management contract or compensatory
plan or arrangement required to be filed as an exhibit hereto
pursuant to Item 14(c) of Form 10-K.
*incorporated by reference to the exhibits included
in Amendment No. 2 to Gulf West's S-4 Registration Statement,
as filed with the Securities and Exchange Commission on
December 4, 1997 (Registration No. 333-37307).
11
<PAGE> 12
**incorporated by reference to Note 1 of the
Consolidated Financial Statements of Gulf West Banks, Inc. and
Subsidiaries, as contained in the 1997 Annual Report to
Shareholders.
(b) No reports on Form 8-K were filed by the Company during the quarter
ended December 31, 1997.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GULF WEST BANKS, INC.
By: /s/ Gordon W. Campbell
---------------------------------
Gordon W. Campbell, President
Date: February 19, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Gordon W. Campbell President, Chairman of the Board February 19, 1998
- -------------------------------
Gordon W. Campbell
/s/ Barry K. Miller Executive Vice President/Secretary/ February 19, 1998
- ------------------------------- Treasurer (principal financial officer
Barry K. Miller and principal accounting officer)
/s/ John Wm. Galbraith Director February 25, 1998
- -------------------------------
John Wm. Galbraith
/s/ Thomas M. Harris Director February 19, 1998
- -------------------------------
Thomas M. Harris
/s/ Algis Koncius Director February 19, 1998
- -------------------------------
Algis Koncius
/s/ Louis P. Ortiz Director February 19, 1998
- -------------------------------
Louis P. Ortiz
/s/ John C. Petagna, Jr. Director February 19, 1998
- -------------------------------
John C. Petagna, Jr.
/s/ P.N. Risser, III Director February 19, 1998
- -------------------------------
P. N. Risser, III
/s/ Ross E. Roeder Director February 19, 1998
- -------------------------------
Ross E. Roeder
</TABLE>
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description of Document
- -------------- -----------------------
<S> <C>
2* Amended and Restated Agreement and Plan of Merger by and among Citizens
National Bank and Trust Company, Inc., Gulf West Banks, Inc. and Mercantile Bank
3.1* Articles of Incorporation of Gulf West Banks, Inc.
3.2* Bylaws of Gulf West Banks, Inc.
10.1* Form of Registration Rights Agreement with Gordon W. Campbell and John Wm.
Galbraith
10.2* Salary Continuation Agreements with Gordon W. Campbell, Barry K. Miller, and
Robert A. Blakley
10.3* Employment Contract with Gordon W. Campbell
10.4* Stock Option Plan
11** Statement regarding computation of per share earnings
13 1997 Annual Report to Shareholders
21* Subsidiaries of Registrant
23.1 Consent of Hacker, Johnson, Cohen & Grieb PA
27 Financial Data Schedule (for SEC use only)
</TABLE>
*incorporated by reference to the exhibits included in
Amendment No. 2 to Gulf West's S-4 Registration Statement, as filed
with the Securities and Exchange Commission on December 4, 1997
(Registration No. 333-37307).
**incorporated by reference to Note 1 of the Consolidated
Financial Statements of Gulf West Banks, Inc. and Subsidiaries, as
contained in the 1997 Annual Report to Shareholders.
14
<PAGE> 1
GULF WEST BANKS [LOGO]
GULF WEST BANKS ANNUAL REPORT 1997
<PAGE> 2
CORPORATE
PROFILE
Gulf West Banks, Inc. is a St. Petersburg, Florida based bank holding company
which owns 100% of the outstanding stock of Mercantile Bank and Liberty Leasing
Corporation. Mercantile Bank, founded in 1986, is a state chartered commercial
bank with ten offices, providing a wide range of banking services to businesses
and individuals located primarily in Pinellas, Hillsborough and Pasco Counties,
Florida. Liberty Leasing Corporation is an equipment leasing company that
arranges financing for a variety of equipment for all types of businesses. On
January 16, 1998, Gulf West acquired Citizens National Bank and Trust Company,
Port Richey, Florida, a $75 million asset bank in Pasco County, Florida. Since
the Citizens acquisition occurred in 1998, this report does not reflect the
resulting combined financial position and operations.
MISSION
The company strives to provide shareholders with superior market valuation for
their investment by positioning Gulf West Banks, Inc. as the premier financial
services company headquartered in the Tampa Bay area. This is achieved by
balancing growth with profitability while maintaining the highest standards of
safety and soundness.
Key business strategies include targeting market segments not adequately served
by the competition, hiring and retaining top professional bankers, delivering
highly personalized service, and actively assisting the local communities we
serve to grow and prosper.
[GULF WEST BANKS LOGO]
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
FINANCIAL HIGHLIGHTS ............................. 1
PRESIDENT'S MESSAGE .............................. 2
BANK LOCATIONS ................................... 4
BOARD OF DIRECTORS ............................... 5
COMMUNITY BOARDS ................................. 5
OFFICERS ......................................... 6
SELECTED FINANCIAL DATA .......................... 8
FINANCIAL REVIEW ................................. 11
INVESTOR AND GENERAL INFORMATION ................. INSIDE BACK COVER
</TABLE>
This Annual Report contains certain forward-looking statements which represent
the issuer's expectations or beliefs, including, but not limited to, statements
concerning the banking industry and the issuer's operations, performance,
financial condition, and growth. For this purpose, any statements contained in
this Annual Report that are not statements of historical fact may be deemed to
be forward-looking statements. Without limiting the generality of the foregoing,
words such as "may," "will," "expect," "believe," "anticipate," "intend,"
"could," "should," "can," "estimate" or "continue" or the negative or other
variations thereof or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, certain of which are beyond the issuer's control, and
actual results may differ materially depending on a variety of important
factors, including competition, general economic conditions, potential changes
in interest rates, and changes in the value of real estate securing loans made
by issuer, among other things.
<PAGE> 3
CONSOLIDATED
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
AT YEAR END: 1997 1996
---------- ---------
<S> <C> <C>
Assets $ 204,848 174,814
Loans, net $ 122,555 112,660
Investment securities $ 53,183 40,231
Deposits $ 169,101 149,335
Stockholders' equity $ 14,541 13,100
Book value per share (1) $ 3.95 3.58
Shares outstanding (1) 3,676,943 3,658,633
Equity-to-assets ratio 7.10% 7.49%
Nonperforming assets-to-total assets ratio (2) 0.31% 0.46%
<CAPTION>
FOR THE YEAR: 1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
Interest income $ 14,039 10,844 8,447
Net earnings $ 1,255 314 708
Return on average assets .69% .22% .63%
Return on average equity 9.18% 2.45% 6.93%
Average equity-to-average assets ratio 7.50% 8.87% 9.11%
Noninterest expenses to average assets 4.26% 4.38% 3.73%
Earnings per share:
Basic 0.34 0.09 0.23
Diluted 0.33 0.08 0.22
<CAPTION>
Average yield or rate during
the year ended December 31,
----------------------------------------------
YIELDS AND RATES: 1997 1996 1995
------ ----- -------
<S> <C> <C> <C>
Loan portfolio 9.41% 9.51% 9.62%
Securities 6.44% 6.25% 6.23%
Other interest-earnings assets 5.42% 5.35% 5.92%
All interest-earnings assets 8.47% 8.38% 8.44%
Deposits and borrowings 4.45% 4.37% 4.45%
Interest-rate spread (3) 4.02% 4.01% 3.99%
Net interest margin (4) 4.84% 4.78% 4.71%
</TABLE>
- --------------------------------------------------------------------------------
(1) All per share information is presented to reflect all stock dividends
and stock splits including the 10% stock dividend declared January
15,1998.
(2) Nonperforming assets consist of nonaccrual loans and other real estate
owned.
(3) Average yield on all interest-earning assets less average rate paid on
all interest-bearing liabilities.
(4) Net interest income divided by average interest-earning assets.
[LOGO]
<PAGE> 4
PRESIDENT'S
MESSAGE
Dear Shareholders:
Nineteen ninety-seven was the best year in the history of our company
both in terms of earnings and in growth. Total after tax earnings were $1.255
million or $0.33 diluted earnings per share, compared with earnings in 1996 of
$314,000 or $0.08 diluted earnings per share. The 1996 earnings were adversely
affected by a one-time Savings Association Insurance Fund ("SAIF") assessment of
$470,000. Since our subsidiary, Mercantile Bank, converted from a savings and
loan charter in 1990, it was subject to this one time assessment. As a result of
the recapitalization of the SAIF Fund, our ongoing annual deposit insurance
premium was substantially reduced and amounted to $93,000 in 1997, as opposed to
an estimated premium of $334,000 had we continued to pay at the old rate. The
banking industry continues to be extremely well capitalized and healthy. The
FDIC has built its insurance fund to the highest level in the history of its
existence, and the future continues to look bright for the industry. Your Board
of Directors declared a 10% stock dividend payable March 16, 1998 to
shareholders of record on February 16, 1998, which will bring the total number
of outstanding shares of Gulf West Banks, Inc. to just over 6 million shares.
The most significant event for the company in the past twelve months was the
closing of our merger with Citizens National Bank and Trust Company of Port
Richey, Florida. This $75 million bank was consolidated into Mercantile Bank in
mid-January which brought total assets to $276 million as of January 31, 1998.
We were quite pleased to complete this marriage with a very fine Pasco County
institution which not only adds quality assets and deposits but also some very
qualified employees to our staff family. Mercantile Bank now operates ten
offices in the three Tampa Bay area counties of Pinellas, Hillsborough and
Pasco. Approval has been received for the opening of an eleventh office which
will be located in Hillsborough County on the corner of Hillsborough Avenue and
Anderson Road, directly north of Tampa International Airport. This office is in
a largely industrial area which will enhance our continued corporate mission to
serve the small business and commercial establishments of the Tampa Bay area.
Gulf West Banks, Inc. is now a reporting company with the Securities and
Exchange Commission and has applied for listing of its common stock on the
Nasdaq National Market System. We expect the application process to be completed
shortly and for our stock to be quoted on Nasdaq very soon - possibly by the
time you receive this Annual Report.
Other significant events in 1997 included the opening of our Downtown St.
Petersburg office, the conversion of our operating systems to an improved data
processing program, and the installation of a wide area terminal network in our
banking offices. Our Business Express product offers on-line banking for
corporate customers. Our leasing subsidiary, Liberty Leasing Corporation, has
grown significantly in the volume of leases originated. Liberty, which is
located in Tampa, moved into new, larger quarters and added to both its sales
and office staff.
2
[LOGO]
<PAGE> 5
The deposit mix of Mercantile Bank continues to be quite favorable with a large
percentage of deposit growth coming from transaction accounts and other low cost
deposit accounts. The consolidation of some of the large regional banks in
Florida has provided opportunities for all community banks to grow. We continue
to emphasize the fact that we are independent and "customer oriented." This
message seems to have reached an ever greater number of commercial businesses
who have contacted our offices about moving their accounts to Mercantile.
More and more community banks are being acquired by out-of-state holding
companies which are anxious to expand into the growing, prosperous Florida
market. Over 16 million people now reside in Florida, and the Tampa Bay area is
definitely a leader in the commercial segment of Florida's growth. Mercantile's
positioning, to remain exclusively in the Tampa Bay area and to concentrate
primarily on small business and commercial customers, has proven to be a winning
strategy and is certainly one which will be continued in the future.
Nineteen ninety-eight should be an excellent year for your company. Earnings
estimates, based on current conditions, are above our last year's results and,
with our additional capital and back-room capability, it should be possible to
leverage these strengths to build on our past growth. Management believes this
growth should translate into better performance in the coming year. While the
national economy may be reaching a cyclical point of turning, we see no
immediate evidence of any such change to date. The quality of our assets remains
quite high.
This Annual Report includes all of the financial information required to be
included in our Form 10-K. This data is quite extensive and should explain in
great detail the financial condition of your company. I believe you will be
pleased as you read the balance of this Annual Report.
Again, thank you for your support. We look forward to serving you and the many
customers you refer to us in the coming year.
[PHOTO]
Sincerely,
/s/ Gordon W. Campbell
- -----------------------------------
Gordon W. Campbell
Chairman of the Board and President
Gulf West Banks, Inc.
February 1998
[LOGO] 3
<PAGE> 6
MERCANTILE BANK LOCATIONS
N.E. ST. PETERSBURG
425 22nd Avenue North
St. Petersburg, Florida 33704
Phone (813) 823-2265
Fax (813) 898-5515
BONNIE S. ROWE
Banking Manager
REYNE L. POWELL
Assistant Manager
TIERRA VERDE
1110 Pinellas Bayway
Tierra Verde, Florida 33715
Phone (813) 867-8674
Fax (813) 867-7692
LILLY CASTRO
Banking Manager
PETER A. LAKATOS
Assistant Manager
MAXIMO
3655 50th Avenue South
St. Petersburg, Florida 33711
Phone (813) 866-2973
Fax (813) 866-7622
ROBERT B. MONTGOMERY
Banking Manager
CAROLYN D. RIGGINS
Assistant Manager
DOWNTOWN
ST. PETERSBURG
240 1st Avenue South
St. Petersburg, Florida 33701
Phone (813) 897-9410
Fax (813) 897-9078
LINDA B. MELLENEY
Banking Manager
KOGER CENTER
9400 Fourth Street North
St. Petersburg, Florida 33702
Phone (813) 570-2265
Fax (813) 576-0627
CAROLYN E. CASSIDA
Banking Manager
ANDREE E. HOYLMAN
Assistant Manager
COUNTRYSIDE
28100 U.S. Highway 19 North
Clearwater, Florida 34621
Phone (813) 799-2265
Fax (813) 799-6984
GRAHAM R. COOK
Banking Manager
SUELLEN EVANS
Assistant Manager
PORT RICHEY
9550-1 U.S. Highway 19
Port Richey, Florida 34668
Phone (813) 846-1444
Fax (813) 847-3827
CAROL L. KINNARD
Interim Banking Manager
JOANNE D. HALL
Assistant Manager
BRYAN DAIRY
8040 Bryan Dairy Road
Largo, Florida 33777
Phone (813) 547-4040
Fax (813) 547-2519
CAROLE A. CHILDS
Banking Manager
TAMPA WESTSHORE
4202 W. Kennedy Boulevard
Tampa, Florida 33609
Phone (813) 286-8789
Fax (813) 287-3630
MARY F. CARPENTER
Banking Manager
MICHAEL A. MAIO
Assistant Manager
TEMPLE TERRACE
9400 N. 56th Street
Temple Terrace, Florida 33617
Phone (813) 985-2265
Fax (813) 985-8921
DIANE TONE
Banking Manager
NINA HAWTHORNE
Assistant Manager
WEST HILLSBOROUGH
4801 W. Hillsborough Avenue
Tampa, Florida 33614
Phone (813) 884-0200
Fax (813) 884-0928
(opening April 1998)
Website and E-Mail Addresses
WEBSITE
www.gwbk-mercantile.com
E-MAIL
[email protected]
[MAP]
4
[MAP]
<PAGE> 7
GULF WEST BANKS, INC.
AND MERCANTILE BANK DIRECTORS
GORDON W. CAMPBELL
Chairman of the Board
President
Gulf West Banks, Inc.
Chairman of the Board
President
Mercantile Bank
Chairman
Argyll Associates, Inc.
AUSTIN L. FILLMON
Construction/Development
(Mercantile Bank Director)
JOHN WM. GALBRAITH
Chairman
Galbraith Properties, Inc.
HENRY W. HANFF, M.D.
Orthopaedic Surgeon
THOMAS M. HARRIS
Attorney-At-Law
Harris, Barrett, Mann & Dew
PANDURANG V. KAMAT, M.D.
Cardio Thoracic Surgeon
ALGIS KONCIUS
President
Koncius Enterprises
VAN L. McNEEL
Chairman of the Board
McNeel Capital Company
(Mercantile Bank Director)
LOUIS P. ORTIZ, CPA
Managing Partner
McNulty, Garcia & Ortiz, P.A.
JOHN COOPER PETAGNA
President
American Municipal Securities, Inc.
P. N. RISSER, III
President & CEO
Risser Oil Corporation
ROSS E. ROEDER
Chairman of the Board
CEO
MDR, Inc. Consulting Group
MERCANTILE BANK
COMMUNITY BOARDS
N.E. ST. PETERSBURG
TERRY L. BARNES
Senior Vice President
Corporate Finance
Raymond James & Assoc.
DR. PETER R. BETZER
Chairman
Marine Science Dept.
University of South Florida
JOHN C. CANNON
President and CEO
St. Petersburg Family YMCA
THOMAS L. DUPONT
Chairman/Publisher
duPont Registry
BENJAMIN B. GODWIN
President
Godwin Real Estate, Inc.
KEVIN M. HUSSEY
President
Stewart Title of Pinellas, Inc.
DAVID W. LOONEY
Vice President
TarHeel Roofing
JAMES S. NEADER
Owner
Neader Sports Management
MICHAEL R. ZOLLER
President
Economy Stationers, Inc.
TIERRA VERDE
MIRIAM BERGER
President
Miramar Services
MARJORIE V. CHASE
Investments
THOMAS F. GAFFNEY
President
Winter Park Capital Company
ARNOLD E. KRAAG
Managing Partner
Island Marina Developers
WILLIAM C. NEWTON
President
Professional Bayway Management
JACK L. SMITHERS
President
Smithers Pest Control, Inc.
MAXIMO
RICHARD D. WILKES, D.V.M.
Veterinarian
Bay Mooring Animal Hospital
BERNIE YOUNG
President
Young at Heart Marketing
KOGER CENTER
KATHRYN DEL GRANDE
Firm Manager
McNulty, Garcia & Ortiz, P.A., CPAs
BARRY W. GREENLEAF
President
Endeavor Medical
CHERYL P. HARRIS
Executive Director
American Institute of Constructors
[LOGO]
5
<PAGE> 8
COMMUNITY BOARDS (continued)
RAYMOND P. HEMPSTEAD
President
Barney's Motorcycle Sales, Inc.
THEODORE C. HENTER, JR.
President
Henter-Joyce, Inc.
COUNTRYSIDE
TERRY HUNT
President
T.L. Hunt, Inc.
MEL JOHNSON
Vice President/District Manager
Fidelity National Title Insurance
PAUL KLIMCZAK
President and CEO
Bay Insurance Marketing
EMIL PRATESI
Attorney
Richards, Gilkey, Fite, Slaughter, Pratesi & Ward, P.A.
MARTIN H. SCHWEITZER, CPA
Schweitzer & Dobosz
JOSEPH J. SOROTA, JR.
Attorney
JOEL S. TRAUB
Vice President
Coastal Builders
DOWNTOWN
GLENN FARLEY
Chief Financial Officer
Capitol Marketing Concepts, Inc.
AL KARNAVICIUS
President
Bayprint
DARRYL LeCLAIR
President and CEO
Echelon International
RICHARD P. AUSTIN
President
Templeton Funds Annuity Company
BRYAN DAIRY
THOMAS L. BOOTH
President
Contract Cleaning Specialists
JOHN G. THOMAS
President
Flo Tec Automation Assoc.
LINDA D. KAUTZ
Systems Director of
Clinical Support
Charter Behavioral Health Systems of Tampa Bay
TAMPA WESTSHORE
CAROL C. BARRY
Assistant Vice President
Fidelity National Title Insurance
STEVE FREEDMAN
President
Freedman's Office Furniture, Inc.
THOMAS E. O'BRIEN
Executive Vice President
AAA/Auto Club South
MILLIE WOOLF
President
Air Animal, Inc.
MICHAEL YORK
President
Communication Systems
Management
ARNOLD ZAZULIA
President A to Z Products, Inc.
TEMPLE TERRACE
PERRY JACOBSEN
Investment Representative
Edward Jones
JERRY N. PERRY
President
The Perry Co. of Tampa, Inc.
WESLEY W. RINK
Retired Banker
JOHN RUZIC
Owner/Managing Partner
Quality Suites Hotel
LINDA SHATTLES
President
Terrace Title
WILLIAM C. TAYLOR
President
Taylor Industrial Sales, Inc.
GULF WEST BANKS, INC. OFFICERS
GORDON W. CAMPBELL
President
BARRY K. MILLER
Secretary/Treasurer
ROBERT A. BLAKLEY
Vice President
JOHN T. SICA
Vice President
DOUGLAS WINTON
Vice President
6
[LOGO]
<PAGE> 9
Mercantile Bank Officers
GORDON W. CAMPBELL
Chairman of the Board
President
ROBERT A. BLAKLEY
Executive Vice President
CHARLES B. MCKENZIE
Executive Vice President
BARRY K. MILLER
Executive Vice President
JOHN T. SICA
Executive Vice President
DOUGLAS WINTON
Executive Vice President
PHILIP H. CHESNUT
President - Pasco County
GILBERT K. GRASS
Senior Vice President
JEFFREY A. HACKETT
Senior Vice President
KENNETH E. HUBER
Senior Vice President
ROBERT G. SHOEMAKER
Senior Vice President
KAY L. BONENFANT
First Vice President
CAROL L. KINNARD
First Vice President
CATHERINE M. RAWL
First Vice President
BONNIE S. ROWE
First Vice President
JEFFREY P. SELIGSOHN, CPA
First Vice President & Controller
MICHELE K. BREEN
Vice President
THERESA G. BROCK
Vice President
CAROLYN E. CASSIDA
Vice President
LILLY CASTRO
Vice President
GRAHAM R. COOK
Vice President
LEE-ELLEN CURRY
Vice President
KAREN L. DONAHOE
Vice President
EMILY A. DUTY
Vice President
MICHAEL L. HAAN
Vice President
EDWIN C. HANCOCK
Vice President
DONNA K. LAWRENCE
Vice President
SHERI MERRIFIELD
Vice President
CAROL J. POIERIER
Vice President
JUNE R. SOOS
Vice President
DIANE L. TONE
Vice President
DEBORAH H. DRAKE
Assistant Vice President
LISA M. NAPOLITANO
Assistant Vice President
MARY F. CARPENTER
Banking Officer
CAROLE A. CHILDS
Banking Officer
DAWN SHEA JANNONE
Banking Officer
LINDA B. MELLENEY
Banking Officer
ROBERT B. MONTGOMERY
Banking Officer
TAMMY J. BAKER
Consumer Loan Officer
LIBERTY LEASING
CORPORATION OFFICERS
ROBERT A. BLAKLEY
Chairman
WILLIAM H. TRIPP
President
RICHARD L. CARNEY
Vice President
7
[LOGO]
<PAGE> 10
Selected
Financial Data
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash and due from banks $ 9,046 8,631 5,555 5,882 4,488
Federal funds sold 8,903 3,356 5,600 5,300 6,300
Investment securities 53,183 40,231 33,489 23,963 17,091
Loans 123,270 112,979 73,948 63,472 53,374
All other assets 10,446 9,617 7,344 5,832 5,485
-------- ------- ------- ------- ------
Total assets $204,848 174,814 125,936 104,449 86,738
======== ======= ======= ======= ======
Deposits 169,101 149,335 109,192 96,372 78,532
Other borrowings 20,237 12,047 3,799 -- --
All other liabilities 969 332 431 149 299
Stockholders' equity 14,541 13,100 12,514 7,928 7,907
-------- ------- ------- ------- ------
Total liabilities and stockholders' equity $204,848 174,814 125,936 104,449 86,738
======== ======= ======= ======= ======
</TABLE>
TOTAL ASSETS TOTAL DEPOSITS
[GRAPH] [GRAPH]
TOTAL SHAREHOLDERS' EQUITY NET LOANS
[GRAPH] [GRAPH]
8
<PAGE> 11
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total interest income $ 14,039 10,844 8,447 6,146 4,931
Total interest expense 6,026 4,659 3,736 2,521 2,046
--------- --------- --------- --------- ---------
Net interest income 8,013 6,185 4,711 3,625 2,885
Provision for loan losses 437 401 240 176 40
--------- --------- --------- --------- ---------
Total interest income after
provision for loan losses 7,576 5,784 4,471 3,449 2,845
Noninterest income 1,987 1,031 849 603 838
Noninterest expense 7,654 6,324 4,181 3,228 3,056
--------- --------- --------- --------- ---------
Earnings before income taxes 1,909 491 1,139 824 627
income taxes 654 177 431 142 --
--------- --------- --------- --------- ---------
Net earnings $ 1,255 314 708 682 627
========= ========= ========= ========= =========
Earnings per share (1):
Basic $ 0.34 0.09 0.23 0.25 0.23
========= ========= ========= ========= =========
Diluted $ 0.33 0.08 0.22 0.25 0.23
========= ========= ========= ========= =========
Without SAIF Assessment**
Net earnings $ 1,255 608** 708 682 627
========= ========= ========= ========= =========
Earnings per common share - basic (1) $ 0.34 0.17** 0.23 0.25 0.23
========= ========= ========= ========= =========
Earnings per common share - diluted (1) $ 0.33 0.16** 0.22 0.25 0.23
========= ========= ========= ========= =========
** SAIF assessment was paid in 1996
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
FOR THE PERIOD: 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Return on average assets 0.69% 0.22% 0.63% 0.74% 0.80%
Return on average equity 9.18% 2.45% 6.93% 8.69% 8.26%
Average equity to average assets 7.50% 8.87% 9.11% 8.47% 9.70%
Interest rate spread during the period (2) 4.02% 4.01% 3.99% 3.82% 3.42%
Net interest margin 4.84% 4.78% 4.71% 4.37% 4.09%
Noninterest expense to average assets 4.26% 4.39% 3.73% 3.49% 3.91%
AT THE END OF THE PERIOD:
Ratio of average interest-earning assets to
average interest-bearing liabilities 1.22 1.21 1.19 1.18 1.23
Nonperforming loans, and foreclosed real estate
as a percentage of total assets 0.31% 0.46% 1.01% 0.81% 0.26%
Allowance for loan losses as a percentage
of total loans 1.26% 1.04% 1.11% 1.03% 1.14%
Allowance for loan losses as a percentage
of nonperforming loans 245.53% 148.19% 107.37% 933.80% 269.30%
Total number of offices 9 8 5 4 4
Full-service banking offices 9 8 5 4 4
Total shares outstanding at end of period (1) 3,676,943 3,658,633 3,605,530 2,707,981 2,707,186
Book value per share (1) 3.95 3.58 3.47 2.93 2.92
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) All per share information is presented to reflect all stock dividends
and stock splits including the 10% stock dividend declared January
15,1998.
(2) Difference between weighted-average yield on all interest-earning
assets and weighted-average rate on all interest-bearing liabilities.
This statement has not been reviewed, or confirmed for accuracy or relevance, by
the Federal Deposit Insurance Corporation.
[LOGO]
<PAGE> 12
Notes
10
<PAGE> 13
Financial
Review
<TABLE>
<CAPTION>
Contents
<S> <C>
Managements's Discussion and Analysis ...................... 13
Management's Responsibilities for Financial Reporting ...... 26
Consolidated Balance Sheets ................................ 27
Consolidated Statements of Earnings ........................ 28
Consolidated Statements of Stockholders' Equity ............ 29
Consolidated Statements of Cash Flows ...................... 30
Notes to Consolidated Financial Statements ................. 31
Report of Independent Accountants .......................... 47
</TABLE>
11
<PAGE> 14
Notes
12
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Gulf West Banks, Inc. (the "Holding Company") is a one-bank holding company and
owns 100% of the outstanding stock of Mercantile Bank (the "Bank"). The Bank is
a State (Florida) chartered commercial bank. The Bank, through ten banking
offices, provides a wide range of banking services to individuals and businesses
located primarily in Pinellas and Hillsborough Counties, Florida. During 1996,
the Holding Company acquired all the outstanding common shares of Liberty
Leasing Corporation ("Liberty") in exchange of 30,000 shares of the Holding
Company's common stock. Liberty is an equipment leasing company that arranges
financing for a variety of equipment for all types of businesses and is
headquartered in Tampa. The acquisition has been accounted for using the
purchase method of accounting. The Holding Company's only business activities
are the operations of the Bank and Liberty. An inactive subsidiary of the Bank,
Portfolio Recoveries Inc., was dissolved in 1995. Collectively the entities are
referred to as the "Company".
The principal services offered by the Bank include commercial and individual
checking and savings accounts, money-market accounts, certificates of deposit,
most types of loans, including commercial and working capital loans and real
estate, home equity and installment loans, as well as financing through letters
of credit. The Bank also provides credit card services through a national credit
card issuer and acts as issuing agent for U.S. Savings Bonds, travelers checks
and cashiers checks. It offers collection teller services, wire transfer
facilities, safe deposit and night depository facilities. The transaction
accounts and time certificates are tailored to the Bank's principal market area
at rates competitive with those offered in the Bank's primary service area. In
addition, the Bank offers certain retirement account services, including
individual retirement accounts. All deposit accounts are insured by the FDIC up
to the maximum amount allowed by law. The Bank offers a wide range of short to
medium-term commercial and personal loans. Commercial loans include both secured
and unsecured loans for working capital (including inventory and receivables),
business expansion (including acquisition of real estate and improvements),
purchase of equipment and machinery, and Small Business Administration ("SBA")
loans. Consumer loans include secured and unsecured loans for financing
automobiles, home improvements, and personal investments. The Bank also
originates and holds construction and acquisition loans on residential real
estate.
At December 31, 1997, the Company had total consolidated assets of $204.8
million, an increase of 17.2% over total assets of $174.8 million at December
31, 1996. During the year ended December 31, 1997, loans receivable increased
$9.9 million or 8.8%. The Company's portfolio of investment securities increased
to $53.2 million as of December 31, 1997 from $40.2 million as of December 31,
1996. The Bank's deposits increased to $169.1 million as of December 31, 1997
from $149.3 million as of December 31, 1996, a 13.2% increase. The Company had
consolidated net earnings of $1,255,000 or $.34 basic earnings per share ($.33
diluted earnings per share) for the year ended December 31, 1997 compared to
consolidated net earnings of $314,000 or $.09 basic earnings per share (.08
diluted earnings per share) for 1996. The consolidated net earnings for the year
ended December 31, 1996 included the effect of the SAIF special assessment of
$470,000 (before taxes).
REGULATION AND LEGISLATION
As a state-chartered commercial bank, the Bank is subject to extensive
regulation by the Florida Department of Banking and Finance ("Florida DBF") and
the Federal Deposit Insurance Corporation ("FDIC"). The Bank files reports with
the Florida DBF and the FDIC concerning its activities and financial condition,
in addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with or acquisitions of other financial
institutions. Periodic examinations are performed by the Florida DBF and the
FDIC to monitor the Bank's compliance with the various regulatory requirements.
The Holding Company and the Bank are also subject to regulation and examination
by the Federal Reserve Board of Governors. As a Florida corporation, the Bank is
also subject to the Florida Act and the regulation of the Florida Department of
State under the authority to administer and implement the Florida Act.
ACQUISITION
On January 16, 1998, the Company acquired Citizens National Bank and Trust
Company, Port Richey, Florida ("Citizens"). The acquisition was accomplished
through the merger of Citizens with and into Mercantile. In consideration of the
merger, the Company issued 1.95 million shares of its common stock to the
shareholders of Citizens. At December 31, 1997, Citizens had total assets of
$75.5 million, total loans of $30.7 million and total deposits of $66.4 million.
Citizens operated one banking office in Pasco County, Florida. The Company will
account for this transaction using the purchase method of accounting.
13
<PAGE> 16
YEAR 2000 COMPLIANCE
The Bank has an ongoing program designed to ensure that its operational and
financial systems will not be adversely affected by year 2000 software failures,
due to processing errors arising from calculations using the year 2000 date.
Based on current estimates the Bank expects to incur $50,000 over the next three
years on its program to redevelop, replace, or repair its computer applications
to make them "year 2000 compliant." While the Bank believes it is doing
everything technologically possible to assure year 2000 compliance, it is to
some extent dependent upon vendor cooperation. The Bank is requiring its
computer system and software vendors to represent that the products provided
are, or will be, year 2000 compliant, and has planned a program of testing for
compliance. It is recognized that any year 2000 compliance failures could result
in additional expense to the Bank.
CREDIT RISK
The Bank's primary business is making commercial, business, consumer and real
estate loans. That activity entails potential loan losses, the magnitude of
which depend on a variety of economic factors affecting borrowers which are
beyond the control of the Bank. While management has instituted underwriting
guidelines and credit review procedures to protect the Bank from avoidable
credit losses, some losses will inevitably occur.
The following table sets forth certain information regarding nonaccrual loans
and foreclosed real estate, including the ratio of such loans and foreclosed
real estate to total assets as of the dates indicated, and certain other related
information.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Residential real estate loans .......................... $ 51 91 -- 53 74
Commercial real estate ................................. 488 628 747 -- 150
Commercial loans ....................................... 83 41 -- -- --
Consumer loans and other ............................... 15 39 26 18 4
----- ----- ----- ----- -----
Total nonaccrual loans ............................. 637 799 773 71 228
----- ----- ----- ----- -----
Total nonperforming loans .......................... 637 799 773 71 228
----- ----- ----- ----- -----
Total nonperforming loans to total assets .......... .31% .46% .61% .07% .26%
===== ===== ===== ===== =====
Foreclosed real estate:
Real estate acquired by foreclosure or deed
in lieu of foreclosure ............................... -- -- 497 -- --
----- ----- ----- ----- -----
Total nonperforming loans and foreclosed real estate $ 637 799 1,270 71 228
===== ===== ===== ===== =====
Total nonperforming and foreclosed real estate
to total assets ................................. .31% .46% 1.01% .07% .26%
===== ===== ===== ===== =====
</TABLE>
Interest income that would have been recorded under the original terms of
nonaccrual loans and the interest income actually recognized are summarized
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income that would have been recognized $71 82 23 6 21
Interest income recognized .................... 51 66 15 4 13
--- --- --- --- ---
$20 16 8 2 8
=== === === === ===
</TABLE>
14
<PAGE> 17
The following table sets forth information with respect to activity in the
Bank's allowance for loan losses during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average loans outstanding, net ........................... $ 116,148 87,000 65,747 57,185 51,691
========= ========= ========= ========= =========
Allowance at beginning of year ........................... 1,184 830 663 613 633
--------- --------- --------- --------- ---------
Charge-offs:
Commercial loans ...................................... (36) -- (41) (61) (60)
Consumer loans ........................................ (60) (54) (57) (77) (9)
--------- --------- --------- --------- ---------
Total loans charged-off ............................. (96) (54) (98) (138) (69)
--------- --------- --------- --------- ---------
Recoveries ............................................... 39 7 25 12 9
--------- --------- --------- --------- ---------
Net charge-offs ..................................... (57) (47) (73) (126) (60)
--------- --------- --------- --------- ---------
Provision for loan losses charged to operating expenses 437 401 240 176 40
--------- --------- --------- --------- ---------
Allowance at end of year .............................. $ 1,564 1,184 830 663 613
========= ========= ========= ========= =========
Ratio of net charge-offs to average loans outstanding . .0005 .0005 .0011 .0022 .0011
========= ========= ========= ========= =========
Allowance as a percent of total loans ................. 1.26% 1.04% 1.11% 1.03% 1.14%
========= ========= ========= ========= =========
Total loans at end of year ............................ $ 124,291 114,065 74,654 64,059 53,674
========= ========= ========= ========= =========
</TABLE>
The following table presents information regarding the Bank's total allowance
for loan losses as well as the allocation of such amounts to the various
categories of loans:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- --------------- ---------------- ----------------
% OF % OF % OF % OF % OF
LOANS IN LOANS IN LOANS IN LOANS IN LOANS IN
EACH EACH EACH EACH EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
AMOUNT TO AMOUNT TO AMOUNT TO AMOUNT TO AMOUNT TO
OF TOTAL OF TOTAL OF TOTAL OF TOTAL OF T0TAL
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans $ 328 15.9% $ 179 15.9% $136 19.5% $137 20.7% $110 18.0%
Commercial real
estate loans .. 985 58.2 782 55.4 447 37.2 327 49.3 276 45.0
Residential real
estate loans .. 63 15.3 67 19.4 120 33.4 119 17.9 153 25.0
Consumer loans .. 188 10.6 156 9.3 127 9.9 80 12.1 74 12.0
------ ----- ------ ----- ---- ----- ---- ----- ---- -----
Total allowance
for loan
losses .. $1,564 100.0% $1,184 100.0% $830 100.0% $663 100.0% $613 100.0%
====== ===== ====== ===== ==== ===== ==== ===== ==== =====
</TABLE>
15
<PAGE> 18
RESULTS OF OPERATIONS
The operating results of the Company depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities, consisting
primarily of deposits. Net interest income is determined by the difference
between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities ("interest-rate spread") and the relative amounts
of interest-earning assets and interest-bearing liabilities. The Company's
interest-rate spread is affected by regulatory, economic and competitive factors
that influence interest rates, loan demand and deposit flows. In addition, the
Company's net earnings are also affected by the level of nonperforming loans and
foreclosed real estate, as well as the level of its noninterest income, and its
noninterest expenses, such as salaries and employee benefits, occupancy and
equipment costs and provisions for losses on foreclosed real estate and income
taxes.
The following table sets forth for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average cost; (iii) net interest/dividend income; (iv) interest-rate spread; (v)
interest margin; and (vi) ratio of average interest-earning asset to average
interest-bearing liabilities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------- ---------------------------- -------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE AND YIELD/ AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE BALANCE DIVIDENDS RATE
-------- --------- ------- ------- --------- ------- ------- --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1) ..................... $116,148 10,934 9.41% $ 87,000 8,272 9.51% $ 65,747 6,326 9.62%
Securities .................... 41,335 2,661 6.44% 33,387 2,086 6.25% 29,573 1,842 6.23%
Other interest-earning
assets (2) ................ 8,187 444 5.42% 9,084 486 5.35% 4,714 279 5.92%
-------- ------- -------- ------ -------- -----
Total interest-earning
assets ................. 165,670 14,039 8.47% 129,471 10,844 8.38% 100,034 8,447 8.44%
------- ------ -----
Noninterest-earning assets ....... 16,754 14,966 12,159
-------- -------- --------
Total assets.............. $182,424 $144,437 $112,193
======== ======== ========
Interest-bearing liabilities:
Savings and NOW deposits ...... 40,267 1,245 3.09% 28,219 812 2.88% 21,501 645 3.00%
Money-market deposits ......... 13,747 371 2.70% 11,716 317 2.71% 10,068 304 3.02%
Time deposits ................. 72,841 3,953 5.43% 61,226 3,260 5.32% 50,245 2,669 5.31%
Other borrowings .............. 8,705 457 5.25% 5,447 270 4.96% 2,073 118 5.69%
-------- ------- -------- ------ -------- -----
Total interest-bearing
liabilities ........ 135,560 6,026 4.45% 106,608 4,659 4.37% 83,887 3,736 4.45%
------- ------ -----
Demand deposits .................. 33,153 25,005 17,671
Noninterest-bearing liabilities .. 36 17 415
Stockholders' equity ............. 13,675 12,807 10,220
-------- -------- --------
Total liabilities and
stockholders'
equity............. $182,424 $144,437 $112,193
======== ======== ========
Net interest income .............. $ 8,013 $ 6,185 $4,711
======= ======= ======
Interest-rate spread (3) ......... 4.02% 4.01% 3.99%
==== ==== ====
Net interest margin (4) .......... 4.84% 4.78% 4.71%
==== ==== ====
Ratio of average interest-
earning assets to
average interest-
bearing liabilities ........... 1.22 1.21 1.19
==== ==== ====
</TABLE>
- ---------------------------------------
(1) Includes nonaccrual loans.
(2) Includes interest-bearing deposits, federal funds sold and securities
purchased under agreements to resell.
(3) Interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-
bearing liabilities.
(4) Net interest margin is net interest income dividend by average
interest-earning assets.
16
<PAGE> 19
RATE/VOLUME ANALYSIS
The following table sets forth certain information regarding changes in interest
income and interest expense of the Company for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in rate (change
in rate multiplied by prior volume), (2) changes in volume (change in volume
multiplied by prior rate) and (3) changes in rate-volume (change in rate
multiplied by change in volume).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 VS. 1996
-----------------------------------
INCREASE (DECREASE) DUE TO
-----------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
----- ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C>
Interest earning assets:
Loans ....................... $ (82) 2,771 (27) 2,662
Securities .................. 63 497 15 575
Other interest-earning assets 7 (48) (1) (42)
----- ------ --- ------
Total ..................... (12) 3,220 (13) 3,195
----- ------ --- ------
Interest-bearing liabilities:
Deposits:
Savings and NOW deposits .. 60 347 26 433
Money market deposits ..... (1) 55 -- 54
Time deposits ............. 63 618 12 693
Other borrowings .......... 16 161 10 187
----- ------ --- ------
Total ..................... 138 1,181 48 1,367
----- ------ --- ------
Net change in net interest income $(150) 2,039 (61) 1,828
===== ====== === ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 VS. 1995
-------------------------------
INCREASE (DECREASE) DUE TO
-------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
---- ------ ------ -----
(In thousands)
<S> <C> <C> <C> <C>
Interest earning assets:
Loans ....................... $(73) 2,043 (24) 1,946
Securities .................. 6 237 1 244
Other interest-earning assets (27) 259 (25) 207
---- ----- --- -----
Total ..................... (94) 2,539 (48) 2,397
---- ----- --- -----
Interest-bearing liabilities:
Deposits:
Savings and NOW deposits .. (26) 201 (8) 167
Money market deposits ..... (32) 50 (5) 13
Time deposits ............. 5 584 2 591
Other borrowings .......... (15) 192 (25) 152
---- ----- --- -----
Total ..................... (68) 1,027 (36) 923
---- ----- --- -----
Net change in net interest income $(26) 1,512 (12) 1,474
==== ===== === =====
</TABLE>
17
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
A Florida chartered commercial bank is required to maintain a liquidity reserve
of at least 15% of its total transaction accounts and 8% of its total
nontransaction accounts less deposits of certain public funds. The liquidity
reserve may consist of cash on hand, cash on demand with other correspondent
banks and other investments and short-term marketable securities as determined
by the rules of the Florida DBF, such as federal funds sold and United States
securities or securities guaranteed by the United States or agencies thereof. As
of December 31, 1997 and December 31, 1996, the Bank has liquidity of
approximately $71.1 million and $52.2 million, or approximately 37.6% and 32.3%
of total deposits combined with borrowings, respectively.
During the year ended December 31, 1997, the Company's primary sources of funds
consisted of principal payments on loans and investment securities, proceeds
from sales and maturities of securities available for sale and net increases in
deposits. The Company used its capital resources principally to purchase
investment securities and fund existing and continuing loan commitments. At
December 31, 1997, the Company had commitments to originate loans totaling $6.3
million. Scheduled maturities of certificates of deposit during the 12 months
following December 31, 1997 totaled $58.8 million as of December 31, 1997.
Management believes the Company has adequate resources to fund all its
commitments, that substantially all of its existing commitments will be funded
within the next twelve months and, if so desired, that it can adjust the rates
on certificates of deposit to retain deposits in a changing interest-rate
environment.
The following table sets forth, by maturity distribution, certain information
pertaining to the investment securities portfolio (dollars in thousands):
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
ONE YEAR OR LESS TO FIVE YEAR TO TEN YEARS AFTER TEN YEARS TOTAL
----------------- ----------------- ----------------- ------------------ ------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1997:
U.S. agency
obligations .... $ -- - % $ 1,004 7.00% $ -- --% $ -- --% $ 1,004 7.00%
U.S. Treasury
securities ..... 3,478 4.86 8,097 6.44 -- -- -- -- 11,575 5.96
Mortgage-backed
securities ..... 7,159 6.85 18,017 6.85 3,214 6.85 12,214 6.85 40,604 6.85
------- ------- ------ ------- -------
Total .......... $10,637 6.19% $27,118 6.73% $3,214 6.85% $12,214 6.85% $53,183 6.66%
======= ==== ======= ==== ====== ==== ======= ==== ======= ====
AT DECEMBER 31, 1996:
U.S. agency
obligations .... $ -- - % $ 1,008 7.00% $ -- --% $ -- --% $ 1,008 7.00%
Municipal
obligations .... 350 5.39 249 5.67 100 6.28 -- -- 699 5.62
U.S. Treasury
securities ..... 2,507 5.63 13,460 5.72 -- -- -- -- 15,967 5.70
Mortgage-backed
securities ..... 2,462 7.08 9,454 7.08 4,738 7.08 5,903 7.08 22,557 7.08
------- ------- ------ ------- -------
Total .......... $ 5,319 6.28% $24,171 6.30% $4,838 7.06% $ 5,903 7.08% $40,231 6.51%
======= ==== ======= ==== ====== ==== ======= ==== ======= ====
</TABLE>
18
<PAGE> 21
REGULATORY CAPITAL REQUIREMENTS
Under FDIC regulations, the Bank is required to meet certain minimum regulatory
capital requirements. This is not a valuation allowance and has not been created
by charges against earnings. It represents a restriction on stockholders'
equity.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the State and Federal
regulators categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table below. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The following table summarizes the capital requirements for the Bank (dollars in
thousands):
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
-------------------- -------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1997:
Total Capital
(to Risk-Weighted Assets)....... $15,458 11.3% $10,922 8.0% $13,652 10.0%
Tier I Capital
(to Risk-Weighted Assets)....... 13,894 10.2 5,461 4.0 8,191 6.0
Tier I Capital
(to Average Assets)............. 13,894 7.5 7,397 4.0 9,246 5.0
AT DECEMBER 31, 1996:
Total Capital
(to Risk-Weighted Assets)....... 13,719 11.4% 9,664 8.0% 12,079 10.0%
Tier I Capital
(to Risk-Weighted Assets)....... 12,535 10.4 4,832 4.0 7,248 6.0
Tier I Capital
(to Average Assets)............. 12,535 7.7 6,495 4.0 8,118 5.0
</TABLE>
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest rate risk inherent in
its lending and deposit taking activities. To that end, management actively
monitors and manages its interest rate risk exposure. The measurement of market
risk associated with financial instruments is meaningful only when all related
and offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified. Disclosures about the fair value of
financial instruments, which reflect changes in market prices and rates, can be
found in Note 10 of Notes to Consolidated Financial Statements.
The Company's primary objective is managing interest-rate risk is to minimize
the adverse impact of changes in interest rates on the Bank's net interest
income and capital, while adjusting the Company's asset-liability structure to
obtain the maximum yield-cost spread on that structure. The Company relies
primarily on its asset-liability structure to control interest rate risk.
However, a sudden and substantial increase in interest rates may adversely
impact the Company's earnings, to the extent that the interest rates borne by
assets and liabilities do not change at the same speed, to the same extent, or
on the same basis. The Company does not engage in trading activities.
19
<PAGE> 22
ASSET - LIABILITY STRUCTURE
As part of its asset and liability management, the Company has emphasized
establishing and implementing internal asset-liability decision processes, as
well as communications and control procedures to aid in managing the Company's
earnings. Management believes that these processes and procedures provide the
Company with better capital planning, asset mix and volume controls,
loan-pricing guidelines, and deposit interest-rate guidelines which should
result in tighter controls and less exposure to interest-rate risk.
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest-rate sensitive" and by
monitoring an institution's interest-rate sensitivity "gap." An asset or
liability is said to be interest-rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest-rate sensitivity
gap is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period.
The gap ratio is computed as dividing rate-sensitive assets by rate-sensitive
liabilities. A gap ratio of 1.0% represents perfect matching. A gap is
considered positive when the amount of interest-rate sensitive assets exceeds
interest-rate sensitive liabilities. A gap is considered negative when the
amount of interest-rate sensitive liabilities exceeds interest-rate sensitive
assets. During a period of rising interest rates, a negative gap would adversely
affect net interest income, while a positive gap would result in an increase in
net interest income. During a period of falling interest rates, a negative gap
would result in an increase in net interest income, while a positive gap would
adversely affect net interest income.
Since gap analysis does not take into account the probability that potential
maturities or repricings of interest rate sensitive assets and liabilities will
occur, or the relative magnitude of the repricings, the Company also uses an
industry standard computer modeling system to perform "Income Simulation
Analysis." Income simulation analysis captures not only the potential of assets
and liabilities to mature or reprice but the probability that they will do so.
In addition, income simulation analysis attends to the relative sensitivities of
balance sheet items and projects their behavior over an extended period of time
and permits management to assess the probable effects on balance sheet items of
not only changes in market interest rates but also of proposed strategies for
responding to such changes.
On a quarterly basis, management of the Company performs an income simulation
analysis to determine the projected effect on net interest income of both a 200
basis point increase and a 200 basis point decrease in the level of interest
rates. These scenarios assume that the 200 basis point rate changes occur in
even monthly increments over twelve months and then hold constant for an
additional twelve months. The volatility of net interest income over this
twenty-four month period in both an up and down rate scenario is measured by
reference to the levels of such income in a flat rate scenario. The Company has
established guidelines for the acceptable volatility of net interest income for
the twenty-four month period and management institutes appropriate strategies
designed to keep the volatility levels within those guidelines.
In order to minimize the potential for adverse effects of material and prolonged
increases in interest rates on the results of operations, the Company's
management continues to monitor asset and liability management policies to
better match the maturities and repricing terms of its interest-earning assets
and interest-bearing liabilities. Such policies have consisted primarily of: (i)
emphasizing the origination of adjustable-rate loans; (ii) maintaining a stable
core deposit base; and (iii) maintaining a significant portion of liquid assets
(cash and short-term investments).
The Company has also maintained a relatively large portfolio of liquid assets
(cash and assets maturing or repricing in one year or less) in order to reduce
its vulnerability to shifts in market rates of interest. At December 31, 1997,
10.5% of the Companys' total assets consisted of cash and short-term U.S.
Government securities maturing in one year or less.
Furthermore, as of such date, the Company's liquidity ratio was 37.6%.
The Company also seeks to maintain a large stable core deposit base by providing
quality service to its customers without significantly increasing its cost of
funds or operating expenses. The success of the Companys' core deposit strategy
is demonstrated by the stability and growth of its demand accounts, money-market
deposit accounts, savings accounts and NOW accounts, which totaled $99.2
million, representing 58.7% of total deposits at December 31, 1997. Management
anticipates that these accounts will increase and in the future comprise a
significant portion of its deposit base.
As of December 31, 1997, the Companys' one-year negative interest-rate
sensitivity gap in dollars was $69.0 million. Although management believes that
the implementation of the foregoing strategies has reduced the potential adverse
effects of changes in interest rates on the Companys' results of operations, any
substantial and prolonged increase in market rates of interest could have an
adverse impact on the Companys' results of operations. As discussed above, on a
quarterly basis management performs an income simulation analysis to measure the
volatility of the Company's projected net interest income when subjected to 200
basis point interest rate shocks. As a result of this simulation analysis,
management believes that its present gap position is appropriate for the current
interest rate environment and that a negative gap will continue in the one year
time period.
20
<PAGE> 23
The following table sets forth certain information relating to the Company's
interest-earning assets and interest-bearing liabilities at December 31, 1997
that are estimated to mature or are scheduled to reprice within the period
shown.
<TABLE>
<CAPTION>
MORE
THAN MORE
THREE THAN SIX MORE
MONTHS MONTHS THAN ONE
THREE SIX TO ONE YEAR TO MORE THAN
MONTHS MONTHS YEAR FIVE YEARS FIVE YEARS TOTAL
--------- ------- ------- ---------- ---------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans (1),(2):
Adjustable rate .............. $ 14,753 6,365 11,714 41,082 274 74,188
Fixed rate ................... 388 1,478 911 3,951 11,477 18,205
Consumer and other loans ..... 16,394 424 892 12,390 2,513 32,613
--------- ------- ------- ------- ------ -------
Total loans ............... 31,535 8,267 13,517 57,423 14,264 125,006
Investments (3),(4) ............ 8,903 -- 3,478 13,261 36,444 62,086
--------- ------- ------- ------- ------ -------
Total rate-sensitive assets 40,438 8,267 16,995 70,684 50,708 187,092
--------- ------- ------- ------- ------ -------
Deposit accounts (5):
Savings and NOW .............. 45,888 -- -- -- -- 45,888
Money market ................. 16,324 -- -- -- -- 16,324
Time deposits ................ 27,018 14,739 17,088 11,030 22 69,897
--------- ------- ------- ------- ------ -------
Total deposit accounts ......... 89,230 14,739 17,088 11,030 22 132,109
Other borrowings ............... 12,737 -- 7,500 -- -- 20,237
--------- ------- ------- ------- ------ -------
Total rate-sensitive
liabilities ........... 101,967 14,739 24,588 11,030 22 152,346
--------- ------- ------- ------- ------ -------
Gap (repricing differences) .... $ (61,529) (6,472) (7,593) 59,654 50,686 34,746
========= ======= ======= ======= ====== =======
Cumulative GAP ................. $ (61,529) (68,001) (75,594) (15,940) 34,746
========= ======= ======= ======= ======
Cumulative GAP/total assets .... (30.00)% (33.20)% (36.90)% (7.78)% 16.96%
========= ======= ======= ======= ======
</TABLE>
- -------------------------
(1) In preparing the table above, adjustable-rate loans are included in the
period in which the interest rates are next scheduled to adjust rather
than in the period in which the loans mature. Fixed-rate loans are
scheduled, including repayment, according to their contractual
maturities.
(2) Includes nonaccrual loans and loans held for sale.
(3) Investments are scheduled according to their respective repricing and
maturity dates.
(4) Includes federal funds sold and securities purchased under agreement to
resell.
(5) NOW, savings and money-market accounts are regarded as ready accessible
withdrawable accounts. Time accounts are scheduled according to their
respective maturity dates.
21
<PAGE> 24
The following table reflects the contractual principal repayments by period of
the Company's loan portfolio at December 31, 1997.
<TABLE>
<CAPTION>
RESIDENTIAL
YEARS ENDING COMMERCIAL MORTGAGE CONSUMER
DECEMBER 31, LOANS LOANS LOANS TOTAL
- --------------------- ------- ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1998 ........................ $25,466 820 3,335 29,621
1999 ........................ 10,335 580 2,715 13,630
2000 ........................ 7,024 642 2,624 10,290
2001-2002 ................... 9,236 1,257 3,238 13,731
2003-2004 ................... 10,092 1,058 908 12,058
2005-2012 ................... 29,896 5,952 357 36,205
Thereafter .................. 99 9,372 -- 9,471
------- ------ ------ -------
Total .................... $92,148 19,681 13,177 125,006
======= ====== ====== =======
</TABLE>
Of the $95,385,000 of loans due after 1998, 27% of such loans have fixed rates
of interest and 73% have adjustable rates.
The following table displays loan originations by type of loan and principal
reductions during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Originations:
Commercial loans ........... $ 12,102 12,543 8,030 6,271 5,600
Commercial real estate loans 31,329 49,234 18,342 9,950 6,265
Residential real estate .... 4,197 3,125 2,314 3,497 1,136
Consumer loans ............. 11,692 9,689 8,979 8,948 8,266
-------- ------- ------- ------- -------
Total loans originated .. 59,320 74,591 37,665 28,666 21,267
Principal reductions ............. (49,094) (35,180) (27,070) (18,281) (16,797)
-------- ------- ------- ------- -------
Increase in gross loans . $ 10,226 39,411 10,595 10,385 4,470
======== ======= ======= ======= =======
</TABLE>
The following table sets forth information concerning the Company's loan
portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------- ------------------- ------------------ ------------------ ------------------
% OF % OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
--------- ----- --------- ----- -------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial .... $ 19,752 15.9% $ 18,169 15.9% $ 14,531 19.5% $ 9,597 15.0% $ 4,846 9.0%
Commercial
real estate . 72,396 58.2 63,207 55.4 27,772 37.2 19,721 30.8 12,667 23.6
Residential
real estate . 18,966 15.3 22,095 19.4 24,949 33.4 27,307 42.6 29,483 54.9
Consumer ...... 13,177 10.6 10,594 9.3 7,402 9.9 7,434 11.6 6,678 12.5
--------- ----- --------- ----- -------- ----- -------- ----- -------- -----
Total loans 124,291 100.0% 114,065 100.0% 74,654 100.0% 64,059 100.0% 53,674 100.0%
===== ===== ===== ===== =====
Less:
Deferred loan
fees ...... (172) (221) (134) (90) (68)
Allowance for
loan losses (1,564) (1,184) (830) (663) (613)
--------- --------- -------- -------- --------
Loans, net $ 122,555 $ 112,660 $ 73,690 $ 63,306 $ 52,993
========= ========= ======== ======== ========
</TABLE>
22
<PAGE> 25
The following table shows the distribution of, and certain other information
relating to, deposit accounts by type:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
1997 1996
------------------ ------------------
% OF % OF
AMOUNT DEPOSIT AMOUNT DEPOSIT
-------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand deposits ........ $ 36,992 21.9% $ 29,601 19.8%
Savings and NOW deposits 45,888 27.1 33,733 22.6
Money market deposits .. 16,324 9.7 13,976 9.4
Time deposits .......... 69,897 41.3 72,025 48.2
-------- ----- -------- -----
Total deposits ......... $169,101 100.0% $149,335 100.0%
======== ===== ======== =====
</TABLE>
Jumbo certificates ($100,000 and over) mature as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1997
-------
(IN THOUSANDS)
<S> <C>
Due three months or less .......... $11,141
Due over three months to six months 3,111
Due over six months to one year ... 4,938
Due over one year ................. 1,313
-------
$20,503
=======
</TABLE>
The scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1997
-------
(IN THOUSANDS)
<S> <C>
Due in one year or less ....................... $58,845
Due in more than one but less than three years 6,656
Due in more than three but less than five years 4,374
Due in over five years ........................ 22
-------
$69,897
=======
</TABLE>
The following table sets forth the net deposit flows of the Company during the
periods indicated (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Net increase before interest credited $13,848 35,508 9,075
Net credited ........................ 5,918 4,635 3,745
------- ------ ------
Net deposit increase ........... $19,766 40,143 12,820
======= ====== ======
</TABLE>
The following table shows the average amount of and the average rate paid on
each of the following interest-bearing deposit account categories during the
periods indicated:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ -----------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE YIELD BALANCE YIELD BALANCE YIELD
-------- ------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Savings and NOW deposits ........... $ 40,267 3.09% $ 28,219 2.88% $21,501 3.00%
Money market deposits .............. 13,747 2.70 11,716 2.71 10,068 3.02
Time deposits ...................... 72,841 5.43 61,226 5.32 50,245 5.31
-------- ---- -------- ---- ------- ----
Total interest-bearing deposits $126,855 4.39% $101,161 4.34% $81,814 4.42%
======== ==== ======== ==== ======= ====
</TABLE>
23
<PAGE> 26
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 AND 1996
GENERAL
Net earnings for the year ended December 31, 1997 were $1,255,000 or $.34 per
share compared to net earnings of $314,000 or $.09 per share for the year ended
December 31, 1996. This increase in the Company's net earnings was primarily due
to an increase in net interest income and noninterest income, partially offset
by increases in noninterest expenses and income taxes.
INTEREST INCOME AND EXPENSE
Interest income increased from $10.8 million for the year ended December 31,
1996 to $14.0 million for the year ended December 31, 1997. Interest income on
loans increased $2.6 million due an increase in the average loan portfolio
balance from $87.0 million for the year ended December 31, 1996 to $116.1
million for the year ended December 31, 1997, partially offset by a decrease in
the weighted-average yield earned on the portfolio. Interest on investment
securities increased $575,000 due to an increase in the average yield earned
from 6.25% in 1996 to 6.44% in 1997, as well as an increase in the average
investment securities portfolio to $41.3 million in 1997 from $33.4 million in
1996. Interest on other interest-earning assets decreased $42,000 due to a
decrease in average other interest-earning assets from $9.1 million in 1996 to
$8.2 million in 1997.
Interest expense increased to $6.0 million for the year ended December 31, 1997
from $4.7 million for the year ended December 31, 1996. Interest expense on
deposit accounts increased primarily due to an increase in average
interest-bearing deposit balances from $101.2 million during the year ended
December 31, 1996 to $126.9 million for the comparable period in 1997. Interest
expense on other borrowings increased $187,000 from $270,000 to $457,000
primarily due to an increase in average borrowings from $5.5 million in 1996 to
$8.7 million in 1997 as well as an increase in average rates. The average cost
of all interest-bearing liabilities increased from 4.37% for the year ended
December 31, 1996 to 4.45% for the year ended December 31, 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses is charged to earnings to bring the total
allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by the Bank,
industry standards, the amounts of nonperforming loans, general economic
conditions, particularly as they relate to the Bank's market areas, and other
factors related to the collectibility of the the Bank's loan portfolio. The
provision increased from $401,000 for the year ended December 31, 1996 to
$437,000 for the year ended December 31, 1997. Management believes that the
allowance for loan losses of $1,564,000 is adequate at December 31, 1997.
NONINTEREST INCOME
Total noninterest income increased $1.0 million to $2.0 million for the year
ended December 31, 1997 from $1.0 million reported in 1996, principally from an
increase in leasing fees from Liberty Leasing, an increase in service fees on
deposits, an increase on gains on sales of securities.
NONINTEREST EXPENSE
Total noninterest expense increased $1.4 million to $7.7 million for the year
ended December 31, 1997 from $6.3 million for the year ended December 31, 1996,
primarily due to an increase in salaries and employee benefits and occupancy
expense relating to additional banking offices opened in 1996 and 1997, as well
as additional data processing expenses partially offset by the SAIF special
assessment that was recorded in 1996, but not in 1997.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
GENERAL
Net earnings for the year ended December 31, 1996 were $314,000 or $.09 per
share compared to $708,000 or $.23 per share for the year ended December 31,
1995. This decrease in the Company's net earnings was primarily due to an
increase in noninterest expenses, including the one-time SAIF special
assessment, partially offset by an increase in net interest income and
noninterest income as well as a decrease in income taxes.
24
<PAGE> 27
INTEREST INCOME AND EXPENSE
Interest income increased by $2.4 million from $8.4 million for the year ended
December 31, 1995 to $10.8 million for the year ended December 31, 1996.
Interest income on loans increased $1.9 million due to an increase in the
average loan portfolio balance from $65.7 million for the year ended December
31, 1995 to $87.0 million for 1996, partially offset by a decrease in the
weighted average yield from 9.6% in 1995 to 9.5% in 1996. Interest on securities
increased $244,000 due to an increase in the average securities balance from
$29.6 million in 1995 to $33.4 million in 1996, as well as an increase in
average yield from 6.2% in 1995 to 6.3% in 1996. Interest on other
interest-earning assets increased $207,000 primarily due to an increase from
$4.7 million in average other interest-earning assets in 1995 to $9.1 million in
1996, partially offset by a decrease in weighted average yield.
Interest expense increased to $4.7 million for the year ended December 31, 1996
from $3.7 million for the year ended December 31, 1995. Interest expense on
deposit accounts and other borrowings increased because of a $22.7 million
increase in the average balance, which was only partially offset by a decrease
of 8 basis points in the average yield paid on deposits and other borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses is charged to earnings to bring the total
allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by the Bank,
industry standards, the amounts of nonperforming loans, general economic
conditions, particularly as they relate to the Bank's market areas, and other
factors related to the collectibility of the Bank's loan portfolio. The
provision increased from $240,000 for the year ended December 31, 1995 to
$401,000 for the year ended December 31, 1996.
NONINTEREST INCOME
Total noninterest income increased $182,000 for the year ended December 31, 1996
compared to 1995 primarily due to an increase in leasing fees due to the
acquisition of Liberty Leasing on September 1, 1996, service fees on deposit
accounts and other income.
NONINTEREST EXPENSE
Total noninterest expense increased $2.1 million for the year ended December 31,
1996 compared to 1995, primarily due to an increase in employee compensation and
benefits, occupancy and equipment expenses and the SAIF special assessment. The
increase in compensation and occupancy expense was related to new banking
offices opened in 1996.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been prepared in
accordance with GAAP, which requires the measurement of financial position and
operating results in terms of historical dollars, without considering changes in
the relative purchasing power of money over time due to inflation. Unlike most
industrial companies, substantially all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Bank's performance than the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services, since such prices are
affected by inflation to a larger extent than interest rates.
FUTURE ACCOUNTING REQUIREMENTS
Financial Accounting Standards 130 - Reporting Comprehensive Income establishes
standards for reporting comprehensive income. The Standard defines comprehensive
income as the change in equity of an enterprise except those resulting from
stockholder transactions. All components of comprehensive income are required to
be reported in a new financial statement that is displayed with equal prominence
as existing financial statements. The Company will be required to adopt this
Standard effective January 1, 1998. As the Statement addresses reporting and
presentation issues only, there will be no impact on operating results from the
adoption of this Standard.
Financial Accounting Standards 131 - Disclosures about Segments of an Enterprise
and Related Information establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company will
be required to adopt this Standard effective January 1, 1998. As the Standard
addresses reporting and disclosure issues only, there will be no impact on
operating results from adoption of this Standard.
25
<PAGE> 28
RESPONSIBILITIES FOR FINANCIAL REPORTING
To Our Stockholders:
Gulf West Banks, Inc. has prepared and is responsible for the following
consolidated financial statements. The financial statements were prepared in
conformity with generally accepted accounting principles in the United States.
Other financial information in this Annual Report is consistent with the
financial statements.
Management maintains a system of internal control designed to provide
reasonable, but not absolute, assurance that we are meeting our responsibility
for the integrity and objectivity of the financial statements. This control
system includes:
- subsidiary reporting, including budget analysis, that provides
reasonable assurance that errors or irregularities that could be
material to the consolidated financial statements would be detected
promptly
- a corporate code of professional ethics monitored regularly
- an internal audit function
- continuing review and evaluation of the control environment
The audit report of Hacker, Johnson, Cohen & Grieb PA, independent public
accountants, follows the consolidated financial statements.
The Board of Directors pursues its oversight role for these financial
statements through its Audit Committee, composed solely of directors who are
neither officers nor employees of Gulf West Banks, Inc. The Audit Committee
meets periodically with the independent public accountants and internal
auditors, with and without the presence of management, to review their
activities and to discuss internal accounting control, auditing and financial
reporting matters.
/s/ Gordon W. Campbell
Gordon W. Campbell
Chairman and President
/s/ Barry K. Miller
Barry K. Miller
Secretary/Treasurer
26
<PAGE> 29
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- -------
<S> <C> <C>
ASSETS
Cash and due from banks ............................................... $ 9,046 8,631
Federal funds sold and securities purchased under agreements to resell 8,903 3,356
-------- -------
Total cash and cash equivalents ........................ 17,949 11,987
Securities available for sale ......................................... 53,183 40,231
Loans receivable, net of allowance for loan losses of $1,564 and $1,184 122,555 112,660
Loans held for sale, at cost which approximates market ................ 715 319
Premises and equipment, net ........................................... 7,043 6,515
Accrued interest receivable ........................................... 1,119 906
Deferred tax asset .................................................... 328 215
Other assets .......................................................... 1,956 1,981
-------- -------
Total .................................................. $204,848 174,814
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits ................................................. 36,992 29,601
Savings, NOW deposits and money-market deposits ................. 62,212 47,709
Time deposits ................................................... 69,897 72,025
-------- -------
Total deposits ......................................... 169,101 149,335
Other borrowings ................................................ 20,237 12,047
Other liabilities ............................................... 969 332
-------- -------
Total liabilities ...................................... 190,307 161,714
-------- -------
Commitments and Contingency (Notes 5 and 10)
Stockholders' equity:
Class A preferred stock, $5 par value, authorized
1,000,000 shares, none issued or outstanding ................ -- --
Common stock, $1 par value; 10,000,000 shares
authorized, 3,342,676 and 3,326,030 issued and outstanding .. 3,343 3,326
Additional paid-in capital ...................................... 9,308 9,254
Retained earnings ............................................... 1,705 450
Unrealized gain on securities available for sale,
net of tax of $112 and $42 .................................. 185 70
-------- -------
Total stockholders' equity ............................. 14,541 13,100
-------- -------
Total .................................................. $204,848 174,814
======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
27
<PAGE> 30
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------- ------- -----
<S> <C> <C> <C>
Interest income:
Loans receivable ..................................... $10,934 8,272 6,326
Securities available for sale ........................ 2,661 2,086 1,842
Other interest-earning assets ........................ 444 486 279
------- ------- -----
Total interest income ........................... 14,039 10,844 8,447
------- ------- -----
Interest expense:
Deposits ............................................. 5,569 4,389 3,618
Other borrowings ..................................... 457 270 118
------- ------- -----
Total interest expense .......................... 6,026 4,659 3,736
------- ------- -----
Net interest income ....................................... 8,013 6,185 4,711
Provision for loan losses ....................... 437 401 240
------- ------- -----
Net interest income after provision for loan losses ....... 7,576 5,784 4,471
------- ------- -----
Noninterest income:
Service fees on deposit accounts ..................... 816 566 446
Loan servicing fees, net ............................. 25 44 61
Gain (loss) from sale of securities available for sale 237 (10) 97
Income from mortgage banking activity ................ 56 39 71
Leasing fees and commissions ......................... 508 131 --
Other income ......................................... 345 261 174
------- ------- -----
Total noninterest income ........................ 1,987 1,031 849
------- ------- -----
Noninterest expenses:
Salaries and employee benefits ....................... 4,273 3,230 2,305
Occupancy expense .................................... 1,502 968 664
Data processing ...................................... 409 224 159
Federal deposit insurance premium .................... 93 181 208
Advertising .......................................... 205 186 124
Stationary, printing and supplies .................... 216 195 104
Telephone and postage ................................ 215 174 127
SAIF special assessment .............................. -- 470 --
General insurance .................................... 107 95 96
Other expense ........................................ 634 601 394
------- ------- -----
Total noninterest expenses ...................... 7,654 6,324 4,181
------- ------- -----
Earnings before income taxes .............................. 1,909 491 1,139
Income taxes .................................... 654 177 431
------- ------- -----
Net earnings .............................................. $ 1,255 314 708
======= ======= =====
Earnings per share:
Basic ................................................ $ .34 .09 .23
======= ======= =====
Diluted .............................................. $ .33 .08 .22
======= ======= =====
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
28
<PAGE> 31
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN
COMMON STOCK (LOSS) ON
--------------------- ADDITIONAL SECURITIES TOTAL
NUMBER OF PAID-IN RETAINED AVAILABLE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS FOR SALE EQUITY
--------- ------ ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 ....... 2,344,572 $2,345 5,812 343 (573) 7,927
Shares issued under employee stock
purchase plan ............... 4,748 5 11 -- -- 16
Shares sold ........................ 772,351 772 2,639 -- -- 3,411
Decrease in unrealized loss on
securities available for sale -- -- -- -- 577 577
Cash dividends of $.03 per share ... -- -- -- (125) -- (125)
Net earnings ....................... -- -- -- 708 -- 708
--------- ------ ----- ------ ---- -------
Balance at December 31, 1995 ....... 3,121,671 3,122 8,462 926 4 12,514
Shares issued under employee stock
purchase plan ............... 7,270 7 19 -- -- 26
Shares issued in exchange for
Liberty Leasing Corporation . 30,000 30 120 -- -- 150
Shares issued under stock option
plan ........................ 9,000 9 21 -- -- 30
Stock dividend ..................... 158,089 158 632 (790) -- --
Increase in unrealized gain on
securities available for sale -- -- -- -- 66 66
Net earnings ....................... -- -- -- 314 -- 314
--------- ------ ----- ------ ---- -------
Balance at December 31, 1996 ....... 3,326,030 3,326 9,254 450 70 13,100
Shares issued under employee stock
purchase plan ............... 7,691 8 31 -- -- 39
Shares issued under stock option
plan ........................ 5,595 6 13 -- -- 19
Shares issued to directors as
compensation ................ 3,360 3 10 -- -- 13
Increase in unrealized gain on
securities available for sale -- -- -- -- 115 115
Net earnings ....................... -- -- -- 1,255 -- 1,255
--------- ------ ----- ------ ---- -------
Balance at December 31, 1997 ....... 3,342,676 $3,343 9,308 1,705 185 14,541
========= ====== ===== ====== ==== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
29
<PAGE> 32
GULF WEST BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ................................................... $ 1,255 314 708
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation ............................................... 778 463 333
Decrease (increase) in other assets ........................ 25 (139) (309)
Provision for loan losses .................................. 437 401 240
Deferred income tax (credit) provision ..................... (183) (119) 114
Income from mortgage banking activity ...................... (56) (39) (71)
Increase (decrease) in other liabilities ................... 637 (99) 251
Increase in accrued interest receivable .................... (213) (109) (195)
Net amortization of fees, premiums and discounts ........... (9) (61) (69)
Write-down on foreclosed real estate ....................... -- 106 --
(Gain) loss on securities available for sale ............... (237) 10 (97)
(Gain) loss on other real estate ........................... (23) 17 1
(Gain) loss on disposal of premises and equipment .......... -- (1) 3
Proceeds from sales of loans held for sale ................. 6,429 5,225 5,421
Originations of loans held for sale ........................ (6,768) (5,247) (5,184)
-------- ------- -------
Net cash flow provided by operating activities ......... 2,072 722 1,146
-------- ------- -------
Cash flows from investing activities:
Purchase of securities available for sale ...................... (37,420) (27,384) (23,155)
Proceeds from sale and maturity of securities available for sale 21,932 16,378 12,336
Principal repayments on securities available for sale .......... 2,914 4,421 2,322
Proceeds from sale of foreclosed real estate ................... 74 272 82
Additions to foreclosed real estate ............................ -- (3) (8)
Purchase of premises and equipment ............................. (1,309) (2,807) (1,286)
Proceeds from sale of premises and equipment ................... 3 51 1
Net increase in loans .......................................... (10,331) (39,265) (11,385)
-------- ------- -------
Net cash used in investing activities .................. (24,137) (48,337) (21,093)
-------- ------- -------
Cash flows from financing activities:
Net (decrease) increase in time deposits ....................... (2,128) 20,223 1,921
Net increase in demand, savings, NOW and
money-market deposit accounts .............................. 21,894 19,920 10,899
Net increase of other borrowings ............................... 8,190 8,248 3,799
Issuance of common stock ....................................... 71 56 3,427
Dividends paid ................................................. -- -- (125)
-------- ------- -------
Net cash provided by financing activities .............. 28,027 48,447 19,921
-------- ------- -------
Net increase (decrease) in cash and cash equivalents ... 5,962 832 (26)
Cash and cash equivalents at beginning of year ...................... 11,987 11,155 11,181
-------- ------- -------
Cash and cash equivalents at end of year ............................ $ 17,949 11,987 11,155
======== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest ................................................... $ 5,918 4,635 3,745
======== ======= =======
Income taxes ............................................... $ 623 427 274
======== ======= =======
Noncash transactions:
Reclassification of loans to foreclosed real estate ........ $ 179 -- 613
======== ======= =======
Reclassification of foreclosed real estate to loans ........ $ 128 106 --
======== ======= =======
Reclassification of securities to available for sale ....... $ -- -- 10,139
======== ======= =======
Issuance of common stock for acquisition of Liberty Leasing $ -- 150 --
======== ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
30
<PAGE> 33
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 AND FOR EACH OF THE YEARS
IN THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL. Gulf West Banks, Inc. (the "Holding Company") is a one-bank holding
company and owns 100% of the outstanding stock of Mercantile Bank (the
"Bank"). The Bank is a State (Florida) chartered commercial bank. The
Bank, through nine banking offices, provides a wide range of banking
services to individuals and businesses located primarily in Pinellas and
Hillsborough Counties, Florida. During 1996, the Holding Company acquired
all the outstanding common shares of Liberty Leasing Corporation
("Liberty") in exchange of 30,000 shares of the Holding Company's common
stock. Liberty is an equipment leasing company that arranges financing
for a variety of equipment for all types of businesses and is
headquartered in Tampa. The acquisition has been accounted for using the
purchase method of accounting. Liberty had nominal assets and liabilities
and goodwill of $157,000 resulted. The goodwill is being amortized over
ten years and is included in other assets. The Holding Company's only
business activities are the operations of the Bank and Liberty. An
inactive subsidiary of the Bank, Portfolio Recoveries Inc., was dissolved
in 1995. Collectively the entities are referred to as the "Company".
ACQUISITION. On January 16, 1998, the Company acquired Citizens National
Bank and Trust Company, Port Richey, Florida ("Citizens"). The
acquisition was accomplished through the merger of Citizens with and into
Mercantile. In consideration of the merger, the Company issued 1.95
million shares of its common stock to the shareholders of Citizens. At
December 31, 1997, Citizens had total assets of $75.5 million, total
loans of $30.7 million and total deposits of $66.4 million. Citizens
operated one banking office in Pasco County, Florida. The Company will
account for this transaction using the purchase method of accounting.
BASIS OF PRESENTATION. The accompanying consolidated financial statements
include the accounts of the Holding Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. The accounting and reporting practices
of the Company conform to generally accepted accounting principles and to
general practice within the banking industry.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
SECURITIES. The Bank may classify its securities as either trading, held to
maturity or available for sale. Trading securities are held principally
for resale and recorded at their fair values. Unrealized gains and losses
on trading securities are included immediately in earnings.
Held-to-maturity securities are those which the Bank has the positive
intent and ability to hold to maturity and are reported at amortized
cost. Available-for-sale securities consist of securities not classified
as trading securities nor as held-to-maturity securities. Unrealized
holding gains and losses, net of tax, on available-for-sale securities
are reported as a net amount in a separate component of stockholders'
equity until realized. Gains and losses on the sale of available-for-sale
securities are determined using the specific-identification method.
Premiums and discounts on securities available for sale and held to
maturity are recognized in interest income using the interest method over
the period to maturity.
LOANS HELD FOR SALE. Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated market
value in the aggregate.
(continued)
31
<PAGE> 34
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
LOANS RECEIVABLE. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off
are reported at their outstanding principal adjusted for any charge-offs,
the allowance for loan losses, and any deferred fees or costs on
originated loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to
the extent cash payments are received.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions.
FORECLOSED REAL ESTATE. Real estate properties acquired through, or in lieu
of, loan foreclosure are to be sold and are initially recorded at fair
value at the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the
real estate is carried at the lower of carrying amount or fair value less
cost to sell. Revenue and expenses from operations are included in the
statements of earnings.
PREMISES AND EQUIPMENT. Premises and equipment are stated at cost less
accumulated depreciation. Depreciation of premises and equipment is
provided on the straight-line basis over the estimated useful life of the
related asset.
ADVERTISING. The Company expenses all media advertising as incurred.
INCOME TAXES. Provisions for income taxes are based on taxes payable or
refundable for the current year (after exclusion of nontaxable income
such as interest on state and municipal securities) and deferred taxes on
temporary differences between the amount of taxable income and pretax
financial income and between the tax bases of assets and liabilities and
their reported amounts in the financial statements. Deferred tax assets
and liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred
tax assets and liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
STOCK-BASED COMPENSATION. Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("Statement 123")
establishes a "fair value" based method of accounting for stock-based
compensation plans and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However,
it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees" (Opinion 25). The Company has elected to follow Opinion 25 and
related interpretations in accounting for its employee stock options.
Statement 123 requires the disclosure of proforma net earnings and
earnings per share determined as if the Company accounted for its
employee stock options under the fair value method of that Statement.
(continued)
32
<PAGE> 35
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
EARNINGS PER SHARE. The following is a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations.
Options to purchase 42,000 shares of common stock at $5.50 a share in
1997 and 47,500 shares at $4.50 in 1995 were not included in the
computation of diluted EPS because the options exercise price was not
less than the average market price of the common shares. These options
expire on August 21, 2007 and August 17, 2005, respectively ($ in
thousands, except per share amounts).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------- -------------------------------- -------------------------------
WEIGHTED-PER WEIGHTED- PER WEIGHTED- PER
AVERAGE SHARE AVERAGE SHARE AVERAGE SHARE
EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT
-------- ------------ ------ -------- ---------- ------ -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net earnings
available to
common
stockholders $1,255 3,670,326 $ .34 314 3,628,246 $ .09 708 3,113,292 $ .23
===== ===== =====
Effect of dilutive
securities-
Incremental shares
from assumed
exercise of
options 85,909 70,599 49,544
--------- --------- ---------
Diluted EPS:
Net earnings
available to
common
stockholders
and assumed
conversions $1,255 3,756,235 $ .33 314 3,698,845 $ .08 708 3,162,836 $ .22
====== ========= ===== === ========= ===== === ========= =====
</TABLE>
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS. In the ordinary course of
business, the Company has entered into off-balance-sheet financial
instruments consisting of commitments to extend credit. Such financial
instruments are recorded in the financial statements when they are
funded or related fees are incurred or received.
FAIR VALUES OF FINANCIAL INSTRUMENTS. The following methods and assumptions
were used by the Company in estimating fair values of financial
instruments disclosed herein:
CASH AND CASH EQUIVALENTS. The carrying amounts of cash and cash
equivalents approximate their fair value.
(continued)
33
<PAGE> 36
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED.
SECURITIES AVAILABLE FOR SALE. Fair values for securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
LOANS. For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for certain fixed-rate mortgage (e.g. one-to-four
family residential), commercial real estate and commercial loans are
estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality.
DEPOSIT LIABILITIES. The fair values disclosed for demand, NOW,
money-market and savings deposits are, by definition, equal to the
amount payable on demand at the reporting date (that is, their carrying
amounts). Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
SHORT-TERM BORROWINGS. Rates currently available to the Company for
debt with similar terms and remaining maturities are used to estimate
fair value of existing debt.
ACCRUED INTEREST. The carrying amounts of accrued interest approximate
their fair values.
OFF-BALANCE-SHEET INSTRUMENTS. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
RECLASSIFICATIONS. Certain amounts in the 1996 and 1995 financial
statements have been reclassified to conform to the 1997 presentation.
FUTURE ACCOUNTING REQUIREMENTS. Financial Accounting Standards 130 -
Reporting Comprehensive Income establishes standards for reporting
comprehensive income. The Standard defines comprehensive income as the
change in equity of an enterprise except those resulting from
stockholder transactions. All components of comprehensive income are
required to be reported in a new financial statement that is displayed
with equal prominence as existing financial statements. The Company
will be required to adopt this Standard effective January 1, 1998. As
the Statement addresses reporting and presentation issues only, there
will be no impact on operating results from the adoption of this
Standard.
Financial Accounting Standards 131 - Disclosures about Segments of an
Enterprise and Related Information establishes standards for related
disclosures about products and services, geographic areas, and major
customers. The Company will be required to adopt this Standard
effective January 1, 1998. As the Standard addresses reporting and
disclosure issues only, there will be no impact on operating results
from adoption of this Standard.
(2) SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
The Bank enters into purchases of securities under agreements to resell
substantially identical securities. At December 31, 1997 and 1996,
these agreements matured daily. The agreements were with a major bank.
Securities purchased under agreements to resell averaged approximately
$6,061,000 and $3,320,000 during 1997 and 1996, and the maximum amounts
outstanding at any month-end during 1997 and 1996 was $10,522,000 and
$3,206,000, respectively. There were no such agreements during 1995.
(continued)
34
<PAGE> 37
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) SECURITIES AVAILABLE FOR SALE
Debtsecurities have been classified according to management's intent. The
carrying amounts and approximate fair values are as follows (in
thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
DECEMBER 31, 1997:
U.S. agency obligations .. $ 1,000 4 -- 1,004
U.S. Treasury securities . 11,454 140 19 11,575
Mortgage-backed securities 40,432 190 18 40,604
------- --- ------ ------
$52,886 334 37 53,183
======= === ====== ======
DECEMBER 31, 1996:
U.S. agency obligations .. 1,000 8 -- 1,008
Municipal obligations .... 700 -- 1 699
U.S. Treasury securities . 15,970 -- 3 15,967
Mortgage-backed securities 22,449 108 -- 22,557
------- --- ------ ------
$40,119 116 4 40,231
======= === ====== ======
</TABLE>
During the quarter ended December 31, 1995, the Company adopted the
provisions of SFAS No. 115 Questions and Answers Guide ("SFAS No. 115
Q&A") which allowed a one-time reclassification of securities between
held to maturity and available for sale between November 15, 1995 and
December 31, 1995. The Company reclassified $10,139,000 of securities
from held to maturity to available for sale. Such reclassification
resulted in a credit of $23,389 to shareholders' equity.
The scheduled maturities of securities available for sale at December 31,
1997 were as follows (in thousands).
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-----------------------
AMORTIZED FAIR
COST VALUE
--------- -------
<S> <C> <C>
Due in one year or less ............. $10,577 10,637
Due after one year through five years 26,970 27,118
Due in five years to ten years ...... 3,196 3,214
Due after ten years ................. 12,143 12,214
------- ------
$52,886 53,183
======= ======
</TABLE>
For purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity
groupings based on the weighted-average contractual maturities of
underlying collateral. The mortgage-backed securities may mature earlier
than their weighted-average contractual maturities because of principal
prepayments.
(continued)
35
<PAGE> 38
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) SECURITIES AVAILABLE FOR SALE, CONTINUED
Securities sales transactions are summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
------- ------ -----
<S> <C> <C> <C>
Proceeds from sales $19,582 9,478 9,312
======= ====== =====
Gross gains ....... 237 -- 97
Gross loss ........ -- 10 --
------- ------ -----
Net gain (loss) ... $ 237 (10) 97
======= ====== =====
</TABLE>
The Company had pledged securities with book values in the amount of
approximately $3,622,000 and $2,951,000 at December 31, 1997 and 1996,
respectively to secure public deposits. Also, securities in the amount of
$498,000 and $197,000 at December 31, 1997 and 1996, respectively have
been pledged to secure treasury tax deposits.
(4) LOANS
The components of loans was as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997 1996
--------- --------
<S> <C> <C>
Commercial ................................... $ 19,752 18,169
Commercial real estate ....................... 72,396 63,207
Residential real estate ...................... 18,966 22,095
Consumer ..................................... 13,177 10,594
--------- --------
Subtotal .................................. 124,291 114,065
Net deferred loan fees, premiums and discounts (172) (221)
Allowance for loan losses .................... (1,564) (1,184)
--------- --------
$ 122,555 112,660
========= ========
</TABLE>
An analysis of the change in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
------- ------ ----
<S> <C> <C> <C>
Balance at January 1 .... $ 1,184 830 663
------- ------ ----
Loans charged off ....... (96) (54) (98)
Recoveries .............. 39 7 25
------- ------ ----
Net loans charged off (57) (47) (73)
Provision for loan losses 437 401 240
------- ------ ----
Balance at December 31 .. $ 1,564 1,184 830
======= ====== ====
</TABLE>
(continued)
36
<PAGE> 39
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) LOANS, CONTINUED
Impaired loans were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at end of year ..................... $489 494 507
Average balance during year ................ 492 501 563
Total related allowance for losses ......... 100 100 100
Interest income recognized on impaired loans 38 52 50
==== === ===
</TABLE>
CREDIT RISK AND CREDIT LOSSES. A credit risk concentration results when the
Company has a significant credit exposure to an individual or a group
engaged in similar activities or having similar economic characteristics
that would cause their ability to meet contractual obligations to be
similarly affected by changes in economic or other conditions.
Most of the Company's business activity is with customers located within
Pinellas and Hillsborough Counties, Florida. The loan portfolio is
diversified among individuals and types of industries. Loans are expected
to be repaid from cash flow or proceeds from the sale of selected assets
of the borrowers. The amount of collateral obtained upon extension of
credit is based on the Company's credit evaluation of the customer.
Collateral primarily includes accounts receivable, inventory, property
and equipment, income-producing commercial properties and residential
homes.
LOANS TO RELATED PARTIES. The aggregate amount of loans owed to the Company
by its executive and senior officers, directors, and their related
entities at December 31, 1997 and 1996 was approximately $1,105,000 and
$697,000, respectively. The loans outstanding as of December 31, 1997
were made up of $856,000 of mortgage loans and $249,000 of various other
types of loans. These loans have been made on substantially the same
terms, including collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more
than normal risk of collectibility.
(5) PREMISES AND EQUIPMENT
A summary of premises and equipment follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1997 1996
------- ------
<S> <C> <C>
Land .............................. $ 1,800 1,413
Building and leasehold improvements 4,125 3,925
Furniture, fixtures and equipment . 3,692 3,108
------- ------
Total, at cost ................ 9,617 8,446
Less accumulated depreciation ..... (2,574) (1,931)
------- ------
$ 7,043 6,515
======= ======
</TABLE>
(continued)
37
<PAGE> 40
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) PREMISES AND EQUIPMENT, CONTINUED
The Company leases facilities and certain equipment under operating leases
with noncancellable terms. Rent expense amounted to approximately
$388,000, $248,000 and $158,000 for the years ended December 31, 1997,
1996 and 1995, respectively. A summary of the operating lease
commitments at December 31, 1997 follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
<S> <C>
1998.............................................................. $ 331
1999.............................................................. 268
2000.............................................................. 273
2001.............................................................. 225
2002.............................................................. 195
Thereafter........................................................ 1,397
-------
$ 2,689
=======
</TABLE>
(6) LOAN SERVICING
Loans serviced for others are not included in the accompanying consolidated
balance sheet. The unpaid principal balances of these loans are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1997 1996
------- ------
<S> <C> <C>
Loan portfolios serviced for:
FNMA ......................................... $15,210 17,161
FHLMC ........................................ 3,765 4,682
Other investors .............................. 3,633 7,685
------- ------
$22,608 29,528
======= ======
Custodial escrow balances maintained in connection
with loan servicing .......................... $ 388 80
======= ======
</TABLE>
(7) DEPOSITS
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000, was approximately $20,503,000 and $22,680,000 at December
31, 1997 and 1996, respectively.
A schedule of maturities for certificate accounts follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
YEAR ENDING ---------------
DECEMBER 31, 1997
------------ ----
<S> <C>
1998................................................... $ 58,845
1999................................................... 5,195
2000................................................... 1,461
2001................................................... 2,166
2002 and thereafter.................................... 2,230
--------
$ 69,897
========
</TABLE>
(continued)
38
<PAGE> 41
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) OTHER BORROWINGS
Securities sold under reverse repurchase agreements were delivered to the
broker-dealers who arranged the transactions. Securities
collateralizing customer reverse repurchase agreements are held in
safekeeping by a third party. The agreements at December 31, 1997
mature within three months. Information concerning securities sold
under agreements to repurchase is summarized as follows ($ in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Average balance during the year ......... $ 8,646 5,447 2,019
Average interest rate during the year ... 5.25% 4.88% 5.72%
Maximum month-end balance during the year $18,237 12,547 5,545
</TABLE>
The average rate was determined by dividing the total interest paid by the
average outstanding borrowings.
Securities underlying the agreements are as follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1997
----
<S> <C>
Carrying value .............. $23,459
=======
Estimated fair value ........ $23,535
=======
</TABLE>
At December 31, 1997, the Company had five variable-rate lines of credit
from other financial institutions, totaling $12,500,000. At December
31, 1997, borrowings against these lines totaled $2,000,000.
(9) INCOME TAXES
The consolidated provision for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
----- ---- ----
<S> <C> <C> <C>
Current:
Federal .............. $ 751 278 263
State ................ 86 18 54
----- ---- ---
Total current .... 837 296 317
----- ---- ---
Deferred:
Federal .............. (156) (102) 97
State ................ (27) (17) 17
----- ---- ---
Total deferred ... (183) (119) 114
----- ---- ---
Total income taxes $ 654 177 431
===== ==== ===
</TABLE>
(continued)
39
<PAGE> 42
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) INCOME TAXES, CONTINUED
The provision for income taxes is different from that computed by applying
the federal statutory rate of 34% as indicated in the following analysis
(dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1997 1996 1995
-------------------- --------------------- ---------------------
% OF % OF % OF
PRETAX PRETAX PRETAX
AMOUNT EARNINGS AMOUNT EARNINGS AMOUNT EARNINGS
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory rate ........ $ 649 34.0% $ 167 34.0% $ 387 34.0%
Increase (reduction) in taxes
resulting from:
State taxes, net of federal income
tax benefit ................... 39 2.1 18 3.7 47 4.1
Tax-exempt income ................ (30) (1.6) (17) (3.5) -- --
Other, net ....................... (4) (.2) 9 1.8 (3) (.2)
----- ---- ----- ---- ----- ----
Income tax provision ............. $ 654 34.3% $ 177 36.0% $ 431 37.9%
===== ==== ===== ==== ===== ====
</TABLE>
The tax effects of each type of item that gives rise to deferred taxes are
(in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses .......................... $489 346
Interest income from loans on nonaccrual status .... 2 2
Deferred compensation .............................. 101 66
---- ---
Total gross deferred tax assets .............. 592 414
---- ---
Deferred tax liabilities:
Net unrealized gain on securities available for sale 112 42
Accumulated depreciation ........................... 143 129
Excess servicing ................................... -- 2
Prepaid expenses ................................... 9 26
---- ---
Total gross deferred tax liabilities ......... 264 199
---- ---
Net deferred tax asset ....................... $328 215
==== ===
</TABLE>
(continued)
40
<PAGE> 43
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers. These financial instruments are commitments to extend
credit and standby letters of credit and may involve, to varying
degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the balance sheet. The contract amounts of these
instruments reflect the extent of involvement the Company has in these
financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies
in making commitments as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed-expiration dates or other termination
clauses and may require payment of a fee. Since some of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral obtained if deemed
necessary by the Company upon extension of credit is based on
management's credit evaluation of the counterparty. Standby letters of
credit and conditional commitments are issued by the Company to
guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as
that included in extending loans to customers.
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 AT DECEMBER 31, 1996
---------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents ... $ 17,949 17,949 11,987 11,987
Securities available for sale 53,183 53,183 40,231 40,231
Loans receivable ............ 122,555 122,579 112,660 112,868
Accrued interest receivable . 1,119 1,119 906 906
Financial liabilities:
Deposit liabilities ......... 169,101 169,335 149,335 149,433
Short-term borrowings ....... 20,237 20,237 12,047 12,047
</TABLE>
A summary of the notional amounts of the Company's financial instruments,
which approximate fair value, with off-balance-sheet risk at December
31, 1997, follows (in thousands):
<TABLE>
<S> <C>
Unfunded loan commitments at variable rates $ 6,349
Available lines of credit ................. $13,495
Standby letters of credit ................. $ 372
</TABLE>
(continued)
41
<PAGE> 44
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) STOCK OPTION PLAN
Certain key employees and directors of the Company have options to purchase
shares of the Company's common stock under its stock option plan. Under
the plan, the total number of shares which may be issued shall not exceed
12% (currently 441,233 shares) of the Company's total outstanding shares.
At December 31, 1997, 13,368 remain available for grant. All per share
amounts reflect the 10% stock dividend declared January 15, 1998. A
summary of stock options transactions follows ($ in thousands, except per
share amounts):
<TABLE>
<CAPTION>
RANGE
OF PER WEIGHTED
SHARE AVERAGE AGGREGATE
NUMBER OF OPTION PER SHARE OPTION
SHARES PRICE PRICE PRICE
-------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1994 320,513 $ 2.65-3.46 2.83 908
Options granted ................ 59,194 3.89 3.90 230
Options forfeited .............. (7,579) 2.85-3.89 3.45 (26)
------- ----------- -------
Outstanding at December 31, 1995 372,128 2.65-3.89 2.99 1,112
Options granted ................ 11,550 3.89 3.89 45
Options exercised .............. (10,106) 2.65-3.45 2.94 (30)
Options forfeited .............. (8,303) 2.77-3.89 3.71 (29)
----------- ---- -------
Outstanding at December 31, 1996 365,269 2.65-3.89 3.01 1,098
Options granted ................ 73,082 4.66-5.00 4.87 356
Options exercised .............. (6,155) 2.65-3.46 3.03 (19)
Options forfeited .............. (4,331) 2.95 2.95 (13)
----------- -------
Outstanding at December 31, 1997 427,865 $ 2.65-5.00 3.32 $ 1,422
======= =========== ==== =======
</TABLE>
The weighted-average remaining contractual life of the outstanding stock
options at December 31, 1997, 1996 and 1995 was sixty-eight months,
sixty-nine months and seventy-nine months, respectively.
These options are exercisable as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
YEAR ENDING OF SHARES EXERCISE PRICE
----------- --------- --------------
<S> <C> <C>
1998.............................. 391,102 $3.23
1999.............................. 20,438 4.15
2000.............................. 9,604 4.43
2001.............................. 6,721 4.61
------- -----
427,865 $3.32
======= =====
</TABLE>
(continued)
42
<PAGE> 45
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) STOCK OPTION PLAN, CONTINUED
In order to calculate the fair value of the options, it was assumed that the
risk-free interest rate was 6.0%, there would be no dividends paid by the
Company over the exercise period, the expected life of the options would
be the entire exercise period and stock volatility would be zero due to
the lack of an active market for the stock. The following information
pertains to the fair value of the options granted to purchase common
stock in 1997, 1996 and 1995 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted-average grant-date fair value of options
issued during the year .................... $ 40 24 102
======== === ===
Proforma net earnings ........................... $ 1,215 280 708
======== === ===
Proforma basic earnings per share ............... $ .33 .07 .23
======== === ===
</TABLE>
(12) STOCK DIVIDEND
The Board of Directors declared a 10% and a 5% stock dividend on January 15,
1998 and during 1996, respectively. All per share amounts have been
presented to reflect these stock dividends.
(13) REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the various banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined)
to average assets (as defined). Management believes, as of December 31,
1997, that the Bank meets all capital adequacy requirements to which it
is subject.
As of December 31, 1997, the most recent notification from the State and
Federal regulators categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table below.
There are no conditions or events since that notification that management
believes have changed the Bank's category.
(continued)
43
<PAGE> 46
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) REGULATORY MATTERS, CONTINUED
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
------------------- ------------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997:
Total capital (to Risk
Weighted Assets) ...... $15,458 11.3% $10,922 8.00% $13,652 10.00%
Tier I Capital (to Risk
Weighted Assets) ...... 13,894 10.2 5,461 4.00 8,191 6.00
Tier I Capital
(to Average Assets) ... 13,894 7.5 7,397 4.00 9,246 5.00
AS OF DECEMBER 31, 1996:
Total capital (to Risk
Weighted Assets) ...... $13,719 11.36% $ 9,664 8.00% $12,079 10.00%
Tier I Capital (to Risk
Weighted Assets) ...... 12,535 10.38 4,832 4.00 7,248 6.00
Tier I Capital
(to Average Assets) ... 12,535 7.72 6,495 4.00 8,118 5.00
</TABLE>
(14) PROFIT SHARING PLAN
The Company sponsors a Section 401(k) profit sharing plan. The profit
sharing plan is available to all employees electing to participate
after meeting certain length-of-service requirements. The Company's
contributions to the profit sharing plan are comprised of two
components: a guaranteed match and a discretionary match. Expense
relating to the Company's contributions to the profit sharing plan
included in the accompanying consolidated financial statements was
$63,000, $49,000 and $26,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
(15) DEFERRED COMPENSATION PLANS
The Company has deferred compensation agreements with certain officers. The
terms of the agreements provide for the payments of specified benefits
to these participants upon severance or retirement or their
beneficiaries in the event of death of the participant while employed
by the Company or while receiving benefits. The Company is accruing the
present value of the future benefits over the terms of the agreements.
The expense of the deferred compensation plans was approximately
$96,000, $76,000 and $66,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
(continued)
44
<PAGE> 47
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of the Holding Company are presented below.
The Holding Company commenced business in January 1995.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1997 1996
------- ------
<S> <C> <C>
ASSETS
Cash and cash equivalents with subsidiary $ 152 276
Investment in wholly-owned subsidiaries . 14,138 12,655
Other assets ............................ 251 169
------- ------
Total ............................... $14,541 13,100
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity .................... 14,541 13,100
------- ------
Total ............................... $14,541 13,100
======= ======
</TABLE>
CONDENSED STATEMENTS OF EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ---- ----
<S> <C> <C> <C>
Revenues ............................... $ -- -- 3
Expenses ............................... 38 25 14
------- ---- ----
Loss before earnings of subsidiaries (38) (25) (11)
Earnings of subsidiaries ........... 1,293 339 719
------- ---- ----
Net earnings ....................... $ 1,255 314 708
======= ==== ====
</TABLE>
(continued)
45
<PAGE> 48
GULF WEST BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) PARENT COMPANY ONLY FINANCIAL STATEMENTS, CONTINUED
CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ............................................ $ 1,255 314 708
Adjustments to reconcile net earnings to net cash used in
operating activities:
Equity in undistributed earnings of subsidiaries .... (1,293) (339) (719)
Net (increase) decrease in other assets ............. (82) 12 5
Decrease in other liabilities ....................... -- -- (31)
------- ------ ------
Net cash used in operating activities ........... (120) (13) (37)
------- ------ ------
Cash flows from investing activities:
Investment in subsidiaries .............................. (75) (3,082) --
Dividends received from subsidiary ...................... -- -- 50
------- ------ ------
Net cash (used in) investing activities ......... (75) (3,082) 50
------- ------ ------
Cash flows from financing activities:
Net proceeds from issuance of common stock .............. 71 56 3,427
Cash dividends .......................................... -- -- (125)
------- ------ ------
Net cash provided by financing activities ....... 71 56 3,302
------- ------ ------
Net (decrease) increase in cash and cash equivalents ........ (124) (3,039) 3,315
Cash and cash equivalents at beginning of the year .......... 276 3,315 --
------- ------ ------
Cash and cash equivalents at end of year .................... $ 152 276 3,315
======= ====== ======
</TABLE>
46
<PAGE> 49
[HACKER, JOHNSON, COHEN & GRIEB PA LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Gulf West Banks, Inc.
St. Petersburg, Florida
We have audited the accompanying consolidated balance sheets of Gulf West
Banks, Inc. and Subsidiaries (the "Company") at December 31, 1997 and 1996 and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997,
in conformity with generally accepted accounting principles.
/s/ HACKER, JOHNSON, COHEN & GRIEB PA
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
January 16, 1998
47
<PAGE> 50
Notes
48
<PAGE> 51
<TABLE>
<CAPTION>
Investor and General Information
<S> <C>
Corporate Headquarters 425 22nd Avenue North
St. Petersburg, Florida 33704
Annual Meeting The Annual Meeting of the
Stockholders will be held at the
Feather Sound Country Club located
at 2201 Feather Sound Drive, St.
Petersburg, Florida at 5:00 P.M.,
April 16, 1998.
Transfer Agent and Registrar Sun Trust Bank; Atlanta
Stock Transfer Department
Post Office Box 4625
Atlanta, Georgia 30302
1-800-568-3476
Corporate Counsel Fowler, White, Gillen, Boggs, Villareal and Banker, P.A.
501 East Kennedy Boulevard, Suite 1700
Tampa, Florida 33602
Independent Auditors Hacker, Johnson, Cohen & Grieb PA
Certified Public Accountants
500 North Westshore Boulevard
Tampa, Florida 33609
Form 10-K A copy of the Form 10-K, as
filed with the Securities and
Exchange Commission, may be
obtained by stockholders without
charge upon written request to
Barry K. Miller, Secretary/Treasurer,
425 22nd Avenue North,
St. Petersburg, Florida 33704.
</TABLE>
Common Stock Prices and Dividends
Although there is no established public trading market for the Company's common
stock, the brokerage firm of Raymond James & Associates, Inc. facilitates trades
of the Company's common stock in the over-the-counter market. Prices reported to
the Company ranged from $4 5/8 to $5 1/8 per share during 1996 and $5 1/8 to $5
1/2 during 1997. The Company paid cash dividends of $0.03 per share in 1995,
paid a 5% stock dividend in 1996 and declared a 10% stock dividend in January
1998. Future dividends, if any, will be determined by the Board of Directors.
As of January 17, 1998, the Company had approximately 625 shareholders of record
of common stock.
<PAGE> 52
[LOGO]
Gulf West Banks, Inc.
425 22nd Avenue North
St. Petersburg, Florida 33704
(813) 894-5696
<PAGE> 1
ACCOUNTANTS' CONSENT
The Board of Directors
Gulf West Banks, Inc.
St. Petersburg, Florida:
We consent to the use of our report dated January 16, 1998 relating to the
consolidated balance sheets as of December 31, 1997 and 1996 and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997 of Gulf West
Banks, Inc., in the Annual Report for 1997 on Form 10-K of Gulf West Banks, Inc.
/s/ HACKER, JOHNSON, COHEN & GRIEB PA
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
February 3, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,046
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,903
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 53,183
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 124,119
<ALLOWANCE> 1,564
<TOTAL-ASSETS> 204,848
<DEPOSITS> 169,101
<SHORT-TERM> 20,237
<LIABILITIES-OTHER> 969
<LONG-TERM> 0
0
0
<COMMON> 3,343
<OTHER-SE> 11,198
<TOTAL-LIABILITIES-AND-EQUITY> 204,848
<INTEREST-LOAN> 10,934
<INTEREST-INVEST> 2,661
<INTEREST-OTHER> 444
<INTEREST-TOTAL> 14,039
<INTEREST-DEPOSIT> 5,569
<INTEREST-EXPENSE> 6,026
<INTEREST-INCOME-NET> 8,013
<LOAN-LOSSES> 437
<SECURITIES-GAINS> 237
<EXPENSE-OTHER> 7,654
<INCOME-PRETAX> 1,909
<INCOME-PRE-EXTRAORDINARY> 1,909
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,255
<EPS-PRIMARY> .34
<EPS-DILUTED> .33
<YIELD-ACTUAL> 4.8
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,184
<CHARGE-OFFS> 96
<RECOVERIES> 39
<ALLOWANCE-CLOSE> 1,564
<ALLOWANCE-DOMESTIC> 1,564
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
